Do Meme Coins Such as Dogecoin Have a Legitimate Case as a Long-Term Investment?

It's easy to dismiss meme coins. Many of them started as silly internet jokes and are completely worthless. Even Dogecoin (CRYPTO: DOGE) -- the king of meme coins -- started as an internet joke more than a decade ago.

However, a handful of meme coins now rank among the most valuable cryptocurrencies on the planet, and meme coins as a whole represent 1.25% of the total value of the crypto market. So, is there any legitimate case for them as a long-term investment?

Diversification into meme coins

One potential justification for investing in meme coins is diversification. Basically, you don't want to put all your eggs in one basket, so you need to think beyond just Bitcoin or Ethereum if you're investing in crypto.

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That leads some investors to consider meme coins such as Dogecoin. After all, DOGE currently has a market cap of $12.5 billion, ranking it among the top 10 cryptocurrencies. Other meme coins with substantial market caps include Shiba Inu, Pepe, and MemeCore. All rank among the top 100 cryptocurrencies by market cap.

Unfortunately, there's no easy way to diversify into a mix of meme coins. Investing in a single meme coin is still too risky, and there's no single ETF that gives you exposure to a basket of meme coins.

Personally, I'd feel a lot better if I owned an ETF that had a good mix of dog- and frog-themed coins. The best you're going to get is a single crypto ETF holding only Dogecoin, and that's simply not enough diversification for most investors.

Beware meme coin math

It's easy to fall into the trap of "meme coin math." Meme coins tend to launch at prices as close to zero as possible, skyrocket to absurd valuations, and then dramatically lose almost all of their value. They don't go all the way to zero, but they get as close as possible.

But even at these drastically lower valuations, they can look like splendid long-term investments. That could be confusing for some investors.

For example, take Dogecoin. Even though it's down a staggering 89% from its all-time high of $0.74 and currently trades for mere pennies, it might initially look like a good long-term investment. That's because it's up a head-spinning 19,000% since its launch back in 2013.

But see how the numbers can be deceiving? The only people who made money were the ones who got to the game early. In 2021, the Dogecoin market cratered. Everyone who bought in 2021 or later got caught holding the bag and is likely down big on their investment.

Memes are for the short run, not the long run

Based on this, it's hard to make the case for meme coins as a suitable long-term investment. There's no good way to get broad-based exposure to them as a stand-alone asset class.

Moreover, their long-term return data is mixed at best and downright scary at worst. For that reason, you can safely exclude meme coins from your long-term portfolio.

Dominic Basulto has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.