The cryptocurrency market has long been a focus for investors due to its high volatility. In their prime, crypto assets can outperform traditional stock market indexes such as the S&P 500 and Nasdaq Composite. Dogecoin (DOGE) stands out as an example of a potential multimillion-dollar earner, with its price up nearly 340% since the beginning of the year. However, according to The Motley Fool analyst Will Ebiefung, such excitement can usually only sustain a rally for so long before reality sets in. The analyst questions whether Dogecoin’s long-term fundamentals are solid.
Launched in 2013, Dogecoin became a turning point in the cryptocurrency world as a meme coin that started as a joke. Meme coins are not usually designed to solve real-world problems or address the shortcomings of other blockchain projects. However, since their market caps are generally lower, these coins are more prone to volatility and can generate big gains when the industry sentiment is bullish. Dogecoin gained a lot of popularity in 2021 thanks to supportive tweets from Tesla CEO Elon Musk. Low interest rates and government stimulus post-COVID-19 may have also fueled this bull run.
Dogecoin has been impressive, gaining 103,400% since its inception, while Bitcoin has grown by 16,470% in the same period. However, despite Dogecoin creating many millionaires during this time, prices are still down 45% from their all-time highs reached in May 2021. According to the analyst, investing in Dogecoin can be a high-risk, high-reward strategy in the cryptocurrency space, but it is important for investors to keep the fundamentals in mind.
Following the previous bull run in 2021, Dogecoin’s recent surge is once again linked to Elon Musk. Musk will be in the Department of Government Efficiency, a federal agency whose symbol resembles Dogecoin’s. This similarity may not be coincidental, and the development raises expectations that Musk’s influence in the new administration could create a more favorable regulatory environment.
According to the analyst, the cryptocurrency sector has a bright future in the short term. A friendlier regulatory environment could increase access to this rapidly growing asset class and make it more attractive to large institutional investors. However, Dogecoin’s fundamentals face some challenges. The platform is designed to produce 5 billion new coins per year (there are currently 147 billion coins in circulation). This fixed supply increase could help make Dogecoin more efficient as a medium of exchange by increasing liquidity. However, the analyst notes that this makes Dogecoin less attractive as a long-term investment. While Dogecoin has created many millionaires, buying at the peak of the current rally could mean the risks outweigh the rewards. The analyst says it’s important to note that the Motley Fool Stock Advisor team doesn’t currently list Dogecoin in the top 10 assets to buy.