Is Dogecoin a millionaire generator?

Popular meme currency Dogecoin (DOGE -0.40%) was it a good or bad investment, depending on when you bought it. The cryptocurrency has risen a remarkable 28,000% over its lifetime, but is down more than 80% from its 2021 peak. However, if you bought Dogecoin a year ago, you’d be up more than 60% today. In other words, Dogecoin could be the most volatile thing you could invest money in.

Given Dogecoin’s huge swings, who am I to say it can’t make investors rich? However, just because something is possible does not mean it is likely.

Dogecoin’s impressive lifetime returns may entice risk-seeking investors, but this is an illusion you should avoid.

Here’s what you need to know.

Dogecoin is too volatile

In general, the more risk you take, the better potential the reward you receive. After all, if ROI was easy to change, everyone would. In theory, investors looking for significant returns should be comfortable taking some risk, traveling the bumpier road in search of a better destination. But Dogecoin takes this to an extreme that most people probably can’t tolerate.

You can see below that Dogecoin has spent most of its existence trading between 40% and 80% below its all-time highs:

Dogecoin price data by YCharts

Perhaps the most brutal truth is that Dogecoin has no intrinsic value. Unlike stocks, it has no underlying business or assets that could justify someone paying a higher price. The price of Dogecoin depends on how much people want it versus its availability. Dogecoin could easily last forever without sniffing its former high again.

The 2021 peak is unlikely to repeat itself

Why Can’t Dogecoin Stop Peaking? It boils down to two problems with cryptocurrency itself.

First and foremost, Dogecoin is a meme coin created for people to learn how cryptocurrencies work. Some merchants have adopted Dogecoin as a form of payment, but it is minimal. It would be hard for enough people to take Dogecoin seriously enough to accumulate it without more widespread adoption. In addition, the intense volatility of meme currency makes it more difficult to adopt, since almost all companies sell goods and services with costs denominated in fiat currency.

The second, and perhaps most significant challenge, is the ever-growing supply of Dogecoin. Society uses the US dollar to buy goods and services, but the dollar itself falls in value as the Federal Reserve adds more dollars to the economy. In other words, it takes more dollars to buy the same goods or services. That’s how inflation works.

Dogecoin miners create approximately five billion DOGE annually and there is no supply cap. So even if everyone were to adopt Dogecoin, the value of the cryptocurrency would theoretically decrease over time due to inflation. The growing supply and limited uses of Dogecoin are pushing the price down.

What about 2021? Pandemic stimulus money and zero percent interest rates created a bubble among riskier assets in 2021. This bubble temporarily increased demand for Dogecoin, propelling it to prices that investors are still chasing today. Investors should probably not buy Dogecoin hoping it will happen again.

Buy this cryptocurrency instead of Dogecoin

Dogecoin is a fun idea, but not a wise investment beyond its novelty value. The meme coin has technically generated stellar returns, but it’s like the lottery. Just because someone wins doesn’t mean it’s wise to play.

Unlike Dogecoin, Bitcoin it is anti-inflationary. The supply is limited to 21 million bitcoins and grows more slowly after each Bitcoin halving. It is the most prominent cryptocurrency and is steadily gaining momentum in society. Many merchants accept it, and some companies keep it on their balance sheet. Institutional investors have started launching even more Bitcoin funds.

These differences have been reflected in Bitcoin’s performance against Dogecoin since the 2021 peak:

Bitcoin Price Data by YCharts

Investors should consider all cryptocurrency investments speculative and hold them in diversified portfolios. However, they are not created equally. Investors looking for cryptocurrency exposure in their portfolio should consider Bitcoin instead.