Dogecoin Is Down 46%. Should You Buy the Dip?

Dogecoin (CRYPTO: DOGE) became a popular cryptocurrency when it debuted as a joke in 2013. It has had several stints when its value has soared since then. Most recently, Dogecoin jumped nearly 190% in the weeks following President​​ Donald Trump's 2024 election.

But Dogecoin has been falling hard lately, and its value is down 46% since the beginning of this year. With such a significant fall, some investors may be wondering if now is a good time to buy Dogecoin on the dip. Here are three reasons why I think that'd be a mistake.

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1. There's no limit on how many Dogecoins can be mined

Scarcity is one of the biggest factors in driving up the value of nearly anything, from rare baseball cards to diamonds. But if a nearly unlimited amount of something can be produced, scarcity doesn't exist, and values are likely to, eventually, fall.

That's why it's problematic that there's no limit to how many Dogecoins can be mined. Even if its value soars over a period, as more coins are mined, crypto investors may be less inclined to buy the coin, which could cause its value to fall. Each year, nearly 5 billion Dogecoins are mined.

Compare that with Bitcoin, of which there can only be 21 million total coins, forever. Both cryptocurrencies may have a certain amount of speculation baked into their prices, but at least Bitcoin is, and always will be, a rare digital asset.

2. Dogecoin's value is deeply rooted in investor sentiment

Investing in nearly anything, including stocks, isn't an exact science. The hope when you buy a stock is that the company will perform well over time -- selling lots of its products and services and making a profit -- so the value of the company increases and pushes the share price higher.

The other side to this is that investor sentiment will also be mixed into the price of that stock, for better or worse. This is why you'll see a stock price fall after a company reports strong quarterly revenue and earnings, simply because investors hoped the financial performance would be even better.

The problem with Dogecoin is that its value is nearly completely reliant on investor sentiment. Sure, the crypto has some limited real-world use cases for completing transactions quickly, but mostly, its price rises and falls based on how investors feel.

While almost all investments can move up or down in the short term based on how investors feel, over the long term, they tend to rise and fall based on concrete metrics (like sales and earnings). Since Dogecoin has limited real-world applications and was created as a joke, its value is almost entirely dependent on the constantly shifting whims of online investors.

3. Dogecoin doesn't have any strategic development

Established cryptocurrencies like Bitcoin and Ethereum have robust developer ecosystems that manage and update their code databases. But because Dogecoin started as a joke, its original developers abandoned the project years ago, and it's now updated sporadically by volunteers.

That means there's no strategic development in place for maintaining, improving, or increasing the adoption of Dogecoin's blockchain. Compare that to Bitcoin, which has a strict review process for updates, and Ethereum, which has thousands of developers that help make core updates. While all of these cryptocurrencies have differing development processes, Dogecoin is essentially stagnant, while Bitcoin and Ethereum have very intentional, even if slow, changes.

Dogecoin's future applications are limited, and there's little reason to believe that Dogecoin will ever rise above its meme coin status.

The verdict: Don't buy Dogecoin

I understand the draw of an investment that has skyrocketed in price in the past and having hopes that it could do the same again. But buying stocks or cryptocurrencies on that feeling is gambling, not investing.

Dogecoin has little real-world application, it can be mined year after year, and its value is dependent on how investors feel about the coin at any given moment. This is all a recipe for disaster when it comes to investing, which is why it's best to stay away from this coin. (Cute dog, though.)

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.