Should You Buy Dogecoin Under $1?

A $0.50 umbrella that turns inside out after the first gust of wind is not a bargain. The same logic applies in crypto, where a low price per unit is not the same as a low valuation.

In that vein, Dogecoin's (CRYPTO: DOGE) price is near $0.16, and to many investors, that price looks inviting amid online chatter about a potential run to $1. But is this coin actually worth buying? Let's answer that question by looking at how the asset creates and preserves value over time.

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The price is the wrong thing to focus on

First, let's do some quick math. It would take roughly a sixfold move from $0.16 to cross $1. That can happen in euphoric markets where sentiment is out-of-control bullish, but a price jump alone does not solve Dogecoin's core issues, nor does it help to determine if it's worth buying and holding for the long run.

On that front, the coin's supply policies are the first order of business to analyze. Dogecoin has no supply cap. Its protocol creates roughly 14.4 million new coins per day, and on the order of 5 billion new coins per year. There are 151.6 billion coins in circulation currently, so the annual increase in supply is relevant to holders, though not necessarily extremely destructive to price in any one year.

But this model does mean holders are continuously diluted unless organic demand grows faster than issuance. What durable engine of value would support that growth consistently over time?

There simply isn't one for Dogecoin. There's no mechanism for burning coins to reduce the supply outstanding. That's a problem because it means the longer people hold Dogecoin, the worse they will get diluted, and the only hope for salvation comes from the market's tendency to send the coin to the moon once in a great while during times of speculative exuberance.

What would need to change

Utility is the bridge that enables transitioning from emotional attention on an asset to that asset accruing value for those who hold it.

As a meme coin, Dogecoin does not natively support smart contracts, which is why decentralized finance (DeFi), on-chain lending, tokenized assets, and many non-payment use cases largely happen elsewhere. But, it might be possible to tack on a Layer-2 (L2) network, which could have the features needed to offer the above. For the coin to be worth buying, such an addition would need to introduce the missing programmability and do so in a way that attracts developers, assets, and users.

There are some ongoing efforts and proposals in that direction.

Some teams are trying to bridge the crypto into L2 frameworks, and others have floated designs that use certain cryptographic proofs to pave the way for adding smart contract programmability. It's interesting work, but still very early-stage -- it's only being discussed as a proposal at present -- and so it's not yet anywhere near delivering a cohesive Dogecoin value-generating flywheel, and it might not ever be. In practice, investors should treat the proposal as a future possibility that warrants a closer look at the asset, not as a base case.

So, the call here is quite straightforward, and there really isn't any wiggle room. Dogecoin is not a coin to buy when it's less than $1, nor at $0.16 -- or at any other price, at least not if your standard is owning assets with supply discipline, clear utility, and credible roadmaps that compound value for long-term holders.

Furthermore, the protocol's perpetual issuance means the burden of proof sits with demand. If an official, widely adopted L2 is developed that brings real smart contract capability, rising developer activity, and a mechanism that offsets dilution, the discussion can change, but don't hold your breath. Until then, watching from the sidelines is the wiser move.

Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.