Why Dogecoin Is Barking Higher Today

The favorite meme coin of many crypto investors, Dogecoin (CRYPTO: DOGE), is touting another impressive performance today. This dog-inspired cryptocurrency is now up 7.7% over the past 24 hours, as of 12:45 p.m. ET, extending its impressive winning streak over the past few days, and bringing the one-month return for this digital asset to more than 185% at the time of this writing.

Of course, most of Dogecoin's recent moves have been tied to the reelection of former president Donald Trump. This token saw single-day surges of more than 20% following the election, and has nearly tripled over the course of just a month. It's clear that Elon Musk's proposed "Department of Government Efficiency," a nod to Dogecoin given the DOGE acronym, has helped. And where there's discussion among investors in the crypto community, there tends to be a disproportionate amount of excitement among meme coin investors. That much is true.

That said, there do appear to be some other key factors driving today's move in Dogecoin. Let's dive into what's propelling this token higher today.

Elon Musk's ownership stake

While the story around Dogecoin appears to remain mostly the age-old meme coin hype-driven narrative (this time with an election-related catalyst), there is another key catalyst investors are watching for when it comes to Dogecoin: Musk's potential ownership stake in Dogecoin.

An intriguing (but unsubstantiated) recording of Musk discussing a personal ownership stake in Dogecoin, as well as a corporate stake in Bitcoin owned by SpaceX, appears to be a key driver around today's move in the meme coin. The recording does certainly sound like Musk, and would make sense, given his continued nods to the dog-inspired crypto.

Again, just how big this ownership stake is, and whether or not Musk is still buying Dogecoin, is unknown. But for those within the Dogecoin community, having Musk as a cheerleader for this project is clearly a good thing, and speculators are following suit with big buying activity.

Be wary of this rally

Like other meme coin projects out there, Dogecoin is an inflationary token without a supply cap. This means that in theory, an unlimited number of Dogecoin can be minted, though the project does burn tokens from time to time in a bid to keep the increase in supply at around 5 billion coins per year.

This simply means that in order for Dogecoin's price to rise in line with its valuation, investors will have to buy more than the annual issuance of tokens over time. As the price of Dogecoin approaches the $0.50 level, that could mean as much as $2.5 billion in capital flowing into this project each year just to keep its price steady. On this basis alone, I'm wary of this project's potential to rise toward new all-time highs. Though, clearly, anything's possible during hype cycles like this.

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Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.