Dogecoin (DOGE -0.66%) is back in the news after a more than 30% rise in the cryptocurrency’s price over the last month. The meme coin may have started as a joke poking fun at Bitcoin, but it’s no laughing matter after amassing a market capitalization of more than $20 billion.
The coin took off in 2021 thanks in large part to Elon Musk — the “Dogefather” — who became an unofficial champion of the cryptocurrency. At the time, a single tweet by Musk could send the price of the coin flying, like when he said that Tesla would begin accepting it as payment for Tesla merch, which it still does.
Dogecoin is a prime example of how cryptocurrencies often marry finance with the peculiarities of internet culture. The coin’s dog theme has spread, spawning hundreds of variations. Some of them have been extremely successful, including Shiba Inu and the more whimsical dogwifhat.
An important note on the economics of Dogecoin
One important thing to know about Dogecoin is that there is no limit to how many Dogecoins can be mined. It is, like the dollar, inflationary. This isn’t necessarily bad if you intend to use it purely as a currency, but if you’re weighing it as an investment, know that an additional 5 billion coins are minted each year, putting downward pressure on its value. In contrast, Bitcoin will become harder and harder to mine over time until, eventually, it reaches its cap and no more coins will be created. This makes Bitcoin deflationary — often a great quality for a long-term investment.
How much would your investment be worth today?
If you had invested $100 into Dogecoin in 2019, your investment would be worth about $5,400 today. That’s a 5,300% total return or a 122% annualized return — not bad. Remember though, past performance is no guarantee of future results. I may end up eating my words, but I would keep Dogecoin in the category of “fun” and look to a serious cryptocurrency like Bitcoin as a true investment asset.
Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Tesla. The Motley Fool has a disclosure policy.
