Should You Buy Dogecoin While It's Under $0.25 or Run for the Hills?

Dogecoin (CRYPTO: DOGE) soared by 250.9% last year, outperforming most other major cryptocurrencies, including Bitcoin, Ethereum, and XRP:

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Dogecoin Price data by YCharts.

The rally gained steam after President Donald Trump's election win in November because he campaigned on a series of pro-crypto policies that could set the stage for a new wave of value creation across the industry. But Dogecoin investors received another surprise when the president appointed Elon Musk (a longtime Dogecoin supporter) to run a new external government agency.

However, Dogecoin peaked at just $0.47 in December, significantly below its all-time high of $0.73 from 2021, and it has since declined to $0.22. Could this be a buying opportunity, or should investors run for the hills?

Image source: Getty Images.

The Elon Musk effect is wearing off

Since 2019, Elon Musk has expressed support for Dogecoin on social media by regularly posting memes and engaging in friendly banter with other enthusiasts. In 2021, investors seemed to interpret his growing support as a ringing endorsement of the meme token's potential, and speculation swirled that he would make some kind of bullish announcement during his appearance on Saturday Night Live (SNL) on May 8 of that year.

Dogecoin peaked at $0.73 on that date, as Musk did nothing more than participate in a comedy skit. Investors quickly realized he didn't have a concrete plan that could actually drive value for the meme token, so it spent the next 12 months plunging. By mid-2022, it had lost more than 90% of its value.

Dogecoin remained dormant for 2023 and most of 2024 but found new life following Trump's election win. Momentum accelerated when he announced Musk would run an external government agency called the "Department of Government Efficiency" -- or DOGE for short -- which would focus on slashing wasteful spending to reduce America's national debt. The DOGE acronym is a clear nod to Musk's favorite cryptocurrency, and once again, investors speculated that he would find new ways to drive value for the meme token.

But as I highlighted earlier, Dogecoin's latest rally stopped well short of its record high from 2021, and the token is now trending lower once again. There has been no indication that Dogecoin will play any role in the DOGE initiative. In fact, Musk recently stepped away from the agency to focus on his companies, like Tesla and SpaceX.

Dogecoin's fundamental issues haven't changed

President Trump might have assembled the most pro-crypto administration in U.S. history. His pick to run the Securities and Exchange Commission (SEC), Paul Atkins, previously served as the co-chairman of a crypto advocacy organization called the Token Alliance and as an advisory board member of blockchain company Securitize.

Atkins was confirmed by the Senate in April, but even before he was officially sworn in, the SEC paused or withdrew several of its active legal cases against crypto companies like Ripple, Binance, and Coinbase. Less crypto regulation and enforcement could pave the way for new use cases with the potential to create value across the industry -- but on the flip side, it also gives bad actors more freedom to operate and potentially harm investors.

Earlier this year, President Trump also established a strategic Bitcoin reserve and a digital asset stockpile, where the U.S. government will store cryptocurrencies it seizes from criminals. There are no plans for the government to actively buy cryptocurrencies at this stage, but with Congressional approval, it could be a possibility in the future.

Unfortunately, Dogecoin doesn't appear to be benefiting from President Trump's pro-crypto policies, and its core fundamentals are to blame. The token has almost no utility in the real world -- just 2,107 businesses are willing to accept it as payment for goods and services worldwide (according to crypto directory Cryptwerk) -- and it isn't a very good store of value, considering its failure to set new highs since 2021.

Dogecoin also has a supply issue, which could serve as a barrier to long-term value creation. There are 149.3 billion tokens in circulation, and although there is a cap on how many new tokens can be issued each year, there is no end date. That means new Dogecoins will be minted until the end of time. I don't know of a single asset with an unlimited supply that has appreciated in value over the long term.

A repeat of 2022 might be unfolding

Since Dogecoin is currently down 53% from its 52-week high of $0.47, it's safe to say enthusiasm for the meme token's potential is fading. That isn't a good sign, especially since, thanks to the Trump administration, this is probably the most positive environment the crypto industry has ever seen.

Dogecoin bottomed at $0.06 after its last collapse in 2022. Therefore, history suggests it could fall by another 72% from its current price of $0.22, and that appears to be the path of least resistance right now.

With Musk stepping away from DOGE and no sign that Dogecoin will become a widely adopted payment solution, I can't see any positive catalysts that will stop the ongoing increase in supply from eroding the meme token's value over time. As a result, the recent dip probably isn't a buying opportunity, and investors might want to run for the hills instead.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, Ethereum, Tesla, and XRP. The Motley Fool has a disclosure policy.