Dogecoin Experienced a 324% Surge in Value during 2024. Does It Outperform Bitcoin as an Investment Opportunity?
Dogecoin (DOGE dropping by 2.30%) is a novel cryptocurrency, characterized by its Shiba Inu dog mascot. Its trading value was $0.0046 per token at the beginning of 2021, but within a span of 5 months, it experienced an extraordinary surge of 15,769% reaching a peak of $0.73. The surge can partly be attributed to the support from Tesla CEO Elon Musk, who was a significant proponent of Dogecoin then.
However, the crypto market went into a bear phase in 2022, resulting in a 92% drop in Dogecoin's price from its peak. The market sentiment has seen a remarkable improvement since then with cryptocurrencies such as Bitcoin (BTC down by 1.41%) breaking new records.
Despite this, Dogecoin continued to struggle and even hovered near its 52-week low as recently as September. That was until the U.S. Presidential election on November 5 when Trump won with Musk's support, leading to a 324% jump in Dogecoin's price this year. It's worth noting that Bitcoin's return was 107% during the same period.
The Musk effect
Throughout 2021, Musk regularly shared Dogecoin-related memes on social media, particularly on Twitter (now owned by him). He even referred to it as his favorite cryptocurrency, which investors regarded as a strong endorsement.
Musk's influence over Dogecoin's price peaked when he appeared on Saturday Night Live on May 8, 2021. Investors anticipated that he would make a more public proclamation of his support. However, the event turned out to be just a comedy skit, resulting in an immediate price drop for Dogecoin, which hasn't managed to reclaim its all-time high since.
Musk attempted to add utility to Dogecoin by announcing that Tesla would accept the token for certain merchandise items at the end of 2021. While this didn't significantly increase adoption, the price continued to plummet.
Following the election, Trump announced his intention to form a new entity called the "Department of Government Efficiency" - D.O.G.E. for short, a possible reference to Musk's favorite cryptocurrency. Musk was named as the head of the entity, along with Vivek Ramaswamy. Interestingly, Dogecoin's price more than doubled from November 5, despite no concrete connection between the new entity and the token.
Bitcoin's legitimate advantages
While cryptocurrencies could potentially replace traditional money in the future, Bitcoin stands out due to its decentralized nature, making it immune to manipulation by any individual or government. It's also built on a reliable system of record called the blockchain.
However, despite these advantages, Bitcoin hasn't seen widespread adoption as a currency, with only 8,952 merchants worldwide accepting it as a payment method. Dogecoin fares slightly better with 2,521 merchants willing to accept it. Without substantial day-to-day usage, it's challenging for a currency to retain or increase in value.
Bitcoin could potentially operate as a store of value rather than a currency, similar to gold. More significantly, this year, regulatory bodies like the US Securities and Exchange Commission approved several Bitcoin exchange-traded funds (ETFs), providing investors with a secure, regulated way to invest in the cryptocurrency.
As of now, a single Bitcoin trades around $92,000, and Cathie Wood's Ark Investment Management predicts a potential price surge as high as $1.48 million by 2030 based on eight potential use cases driving adoption. Bitcoin's potential usage as a digital gold alternative and increased adoption by institutional investors and even governments are two of these use cases.
Notably, Trump has recently expressed an openness to the idea of creating a Bitcoin reserve for the U.S. government, indicating the world's wealthiest nation could potentially become a significant buyer of Bitcoin.
Lessons for Dogecoin investors from 2021
Despite Dogecoin surpassing Bitcoin's percentage return this year, it hasn't managed to reach its previous peak. In contrast, Bitcoin has consistently set new records and shows solid potential for further growth.
Dogecoin's utility is limited, and it lacks the support of institutions and regulators. Consequently, it predominantly serves as a tool for speculation. Investors should recall the aftermath of the previous speculative surge in Dogecoin, which led to a 92% decline over the subsequent year due to the absence of solid backbone for its momentum.
Bitcoin still emerges as the superior long-term investment, even if it falls short of Ark Invest's projected $1.48 million price tag within the next six years. Its robust history of yielding positive returns since its 2009 debut, coupled with its reliability, makes it a safe bet to surpass speculative tokens like Dogecoin in the long haul.
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Investors looking to put their money into the cryptocurrency market might consider diversifying their portfolio by investing in different digital currencies, such as Dogecoin and Bitcoin. The performance of Dogecoin in 2021, driven primarily by Elon Musk's support and endorsements, showed significant returns, surpassing Bitcoin's percentage increase in the same year. However, the long-term potential of Bitcoin as a decentralized and reliable cryptocurrency, coupled with its widespread acceptance, makes it a more solid investment choice.
Given the volatile nature of the crypto market, it's essential for investors to understand the advantages and limitations of each digital currency before making an investment decision. While Dogecoin can provide exciting returns due to its speculative nature, Bitcoin's inherent advantages, including its decentralized structure and regulatory support, make it a more secure and promising long-term investment.
