Is Dogecoin a Millionaire Maker?

Dogecoin (CRYPTO: DOGE), which started out as a meme-based parody of Bitcoin (CRYPTO: BTC), turned its earliest investors into millionaires. It launched in 2013 with a trading price of $0.00026, but it now trades at about $0.19 per token.

That's well below its all-time high of $0.74 from May 2021, but it would still have turned a $2,000 investment into almost $1.5 million in just 12 years. Let's see why this meme coin became a millionaire-maker token, and if could churn a fresh $2,000 investment into $1 million again.

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How is Dogecoin different from Bitcoin?

Dogecoin, like Bitcoin, is mined with the energy-intensive proof-of-work (PoW) validation mechanism. Its miners use powerful mining computers, which run on application-specific integrated circuits (ASICs), to earn its coins as rewards for solving cryptographic puzzles.

Dogecoin was created from the open-source code for Litecoin, another PoW token which was forked (split off) from Bitcoin's blockchain in 2011. Dogecoin and Litecoin are often mined together because both blockchains accept the same solutions.

Therefore, when a miner solves a cryptographic puzzle on Litecoin's PoW blockchain, the exact same hashing solution can be submitted to Dogecoin's blockchain to earn rewards in both coins. However, a miner can choose to mine the two coins separately.

Dogecoin differentiates itself from Bitcoin and Litecoin with Scrypt, a proprietary algorithm that lets it process its transactions at a faster and more power-efficient rate. Unlike Bitcoin and Litecoin -- which have capped supplies of 21 million and 84 million tokens, respectively -- Dogecoin doesn't have a maximum supply limit, and has 151 billion coins in circulation. Dogecoin's supporters believe that design will drive more people to use it for payments instead of hoarding it.

But as a PoW blockchain, Dogecoin can't support smart contracts, which are used to develop decentralized apps (dApps), non-fungible tokens (NFTs), and other crypto assets. By comparison, proof-of-stake (PoS) blockchains like Ethereum and Solana support smart contracts.

Why did Dogecoin soar?

Dogecoin can't be valued by scarcity like Bitcoin, and it can't be valued by its usefulness for developers like Ethereum or Solana. Yet some glowing endorsements from Elon Musk, Mark Cuban, Snoop Dogg, and other high-profile investors drove its price to an all-time high during the last bull market for crypto in 2020 to 2021.

In particular, Musk's random posts about Dogecoin on X (formerly Twitter), his decision to have Tesla accept Dogecoin payments for certain products (but not its cars), and the federal government's creation of the Department of Government Efficiency (DOGE) under the Trump administration all generated a lot of buzz for the cryptocurrency.

The bears might argue that Dogecoin's gains were mainly driven by social media buzz, a fear of missing out (FOMO), and the rising popularity of commission-free crypto trading apps instead of any fundamental strengths. That might be why Dogecoin stayed far below its peak during the past year as Bitcoin set fresh highs.

What catalysts are on the horizon?

The bulls believe three catalysts could drive Dogecoin's price higher. First, several crypto firms submitted applications for Dogecoin's first spot price exchange-traded funds (ETFs) to the Securities and Exchange Commission (SEC) this year. The potential approvals of those ETFs could draw in new retail and institutional investors.

REX-Osprey, a partnership between REX Shares and Osprey Funds, recently launched its Dogecoin-backed ETF on the Chicago Board Options Exchange (CBOE). It accomplished that by structuring it under the Investment Company Act of 1940 ("40 Act") which requires a shorter SEC approval process than the ETFs on bigger exchanges.

Second, Dogecoin could also gain more support from developers using a new Layer-2 (L2) solution built on Polygon's PoS blockchain. That expansion could make Dogecoin a more useful cryptocurrency for dApp developers. Lastly, CleanCore Solutions, a producer of ozone cleaning products, recently announced an ambitious plan to acquire 5% of Dogecoin's entire circulating supply for its own Dogecoin treasury. That ambitious move, which resembles Strategy's huge Bitcoin purchases, might drive more companies to accumulate Dogecoin in the future.

Could Dogecoin be a millionaire maker?

Although these catalysts might stabilize Dogecoin's price as lower interest rates drive more investors back to cryptocurrencies, it probably won't turn $2,000 into $1 million again. Such gain would boost Dogecoin's market cap from $29 billion to almost $15 trillion. Bitcoin, the world's top cryptocurrency, only has a market cap of $2.2 trillion.

Instead, investors should focus on more realistic targets. Its catalysts might drive it back to its all-time high -- which would be nearly quadruple its current price. If that happens, it might even rise to $1 and attract even more attention from big investors. So although I think Dogecoin has life-changing potential, I wouldn't call it a millionaire maker yet.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Solana, and Tesla. The Motley Fool recommends Polygon. The Motley Fool has a disclosure policy.