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Dogecoin (DOGE USD) had its moment a year ago when Elon Musk promoted it and the meme coin reached a $90 billion market capitalization. However, it is now time for investors to seek more than just promises as the hype dies down. DOGE has continued on its long-term decline despite multiple posts about Dogecoin from Musk.
Of course, the occasional tweet from Musk did remedy its decline for the short term a few times. However, Dogecoin’s trend to the downside is far from over. In the current bear market, investing in meme coins promoted by a billionaire is far from the average person’s to-do list, especially when it keeps going down.
In the current state of the economy, it is far-fetched for Dogecoin to go on another bull run, let alone sustain it in the long term. Thus, investors should avoid it and invest in assets with more utility.
Dogecoin’s Current Market Cap Is Too High
Dogecoin’s market cap currently sits at around $7.4 billion. This is a 90% decline from its all-time high at $90 billion. However, I believe it is too high for an asset without utility, and DOGE still has more room to decline.
Elon Musk promoting it certainly adds some value. But it won’t make it a long-term investment. For example, his recent announcements to accept Dogecoin as payment for some SpaceX other Tesla (NASDAQ:TSLA) merch does not change anything fundamental about the coin. In fact, people could do it with most cryptocurrencies by using a crypto card. As a result, the announcement only had a short-term impact on DOGE’s price.
Dogecoin’s Inflation Rate Is Higher Than Its Demand
The real value lies in a blockchain’s tokenomics and what people can do with it. For example, Bitcoin’s (BTC USD) value stems from its max supply cap and enormous popularity. Only so much will ever exist of this highly popular crypto. Therefore the demand continues to remain high. The rewards for mining Bitcoin are also halved around every four years.
On the other hand, Dogecoin does not have a max supply cap or halving, and 10,000 DOGE is added to the supply pool with a block time of just one minute. Its popularity has also faded in recent times.
In addition, there are no projects that are built on the Dogecoin blockchain that support its value. For example, Ethereum (ETH USD) has thousands of smart contracts on its blockchain, such as ERC20 tokens, NFTs and programs. All of them require ETH to operate, thus driving up its demand.
Can a Proof-of-Stake Migration Salvage Dogecoin?
Dogecoin currently uses a proof-of-work (PoW) consensus, which is energy-intensive, but its developers have announced a plan to shift to a proof-of-stake (PoS) consensus. However, it is likely to take a very long time to do so.
It has taken the Ethereum team years with its migration to proof-of-stake, and it has only been done on the Ethereum Testnet as of now. For a project like Dogecoin, such a shift would take an extremely long amount of time. With DOGE’s value declining each day, it looks more and more far-fetched. There is also little information about the utility that could be added from this shift.
Furthermore, the Dogecoin foundation implies that they want DOGE to act only as a currency. That means no smart contracts, tokens, NFTs or DApps on the Dogecoin blockchain. However, cryptocurrencies have evolved to have a much broader use case than just being payment methods. Thus, Dogecoin’s inability to support Web3 development will not make it an attractive investment in the future.
With that in mind, I believe it is better to avoid Dogecoin for now. There is still a lot of uncertainty in the current market and about the project’s future. Therefore, a $7.4 billion market cap for DOGE seems relatively high.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Omor Ibne Ehsan is a writer at InvestorPlace. He is also an active contributor to a variety of finance and crypto-related websites. He has a strong background in economics and finance and is an advocate of blockchain technology. You can follow him on LinkedIn.
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