Can Dogecoin Reach $1?

Dogecoin (CRYPTO: DOGE) has soared by 338% in 2024 so far, with the bulk of that gain coming after former President Donald Trump won reelection on Nov. 5.

Tesla CEO Elon Musk was a major financial contributor to the Trump campaign, and he is also a big reason for the renewed enthusiasm toward Dogecoin, which I'll explain further in a moment.

Dogecoin currently trades at $0.40 per token, which is still below its all-time high of $0.73 from 2021. With the support of the world's richest man and a crypto-friendly Trump administration, is Dogecoin now destined to reach $1?

A speculative token with very little utility

Dogecoin's rise to $0.73 in 2021 was driven by pure speculation, and since speculative frenzies never last, it was no surprise when the token plunged by as much as 92% from that peak in 2022.

Simply put, Dogecoin has no real utility -- in fact, the two founders (Jackson Palmer and Billy Markus) launched the token as a joke in 2013.

According to Cryptwerk, only 2,519 merchants around the world are willing to accept Dogecoin as payment for goods and services. A large portion of them are obscure providers of internet services, and even online gambling houses. If consumers can't spend their tokens at their favorite stores, they have no reason to buy more. That makes it very hard for Dogecoin to sustain its value.

Image source: Getty Images.

Elon Musk is Dogecoin's most influential supporter

Musk called Dogecoin his favorite cryptocurrency in 2021, and he spent much of that year promoting it on social media using memes and humorous commentary. He was a huge proponent of its surge to $0.73 -- in fact, that peak was actually set on May 8, shortly after he appeared on Saturday Night Live.

Investors thought Musk would use the show to make a grand declaration of his support for Dogecoin, but it didn't happen. Once it became clear that Musk didn't have a real strategy to go with all the memes and social media banter, Dogecoin's value collapsed.

It continued to slide throughout 2022 and flatlined in 2023. It was even trading near its 52-week low as recently as September of this year, but that all changed when Trump won the presidential race on Nov. 5.

President-elect Trump is a big supporter of the cryptocurrency community, and his administration will likely approach the industry with a relatively light regulatory touch. But that's only one reason for Dogecoin's recent surge.

Trump appointed Musk and Vivek Ramaswamy to head a new agency called the "Department of Government Efficiency," or DOGE for short. The acronym is a reference to Musk's favorite cryptocurrency, and even though there is no concrete plan to involve Dogecoin in the department, the announcement alone added fuel to its rally.

Not even Musk can help Dogecoin sustain a price above $1

Based on Dogecoin's current supply of 146.8 billion tokens and its current price of $0.40 per token, it currently has a market capitalization of $58.8 billion. If it reaches its all-time high of $0.73, its market cap will hit $107.2 billion.

At a price of $1 per token, simple math implies a market cap of $146.8 billion. I think that's a possibility with a powerful enough speculative rally at some point in the next four years under the Trump administration. To be clear, I'm not predicting it will happen, I'm merely acknowledging it as a potential outcome.

After all, Bitcoin has a market cap of $1.9 trillion as of this writing. It's becoming a popular store of value, but like Dogecoin, it doesn't have much utility as a currency. Bitcoin is simply a place investors are parking their money in the hope of higher prices in the future (in other words, it's another speculative asset).

However, even if Dogecoin does soar 150% from here to reach $1, I don't think it will be sustainable over the long term. I think a repeat of the 2022 plunge would eventually be in the cards, because there aren't any concrete fundamentals supporting its value.

The Department of Government Efficiency will be tasked with slashing costs across the entire federal government, in an attempt to reduce wasteful spending and pay down the country's $36 trillion debt load. Aside from the name, DOGE has absolutely nothing to do with Dogecoin.

This feels similar to when Musk decided to accept Dogecoin as payment for certain items of Tesla merchandise in December 2021. It was an attempt to give the token some utility, but it didn't move the needle, nor did it arrest the steep decline in value that followed.

As a result, while $1 is possible in the future, investors should take a cautious approach to buying Dogecoin. They should only invest what they can afford to lose.

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Anthony Di Pizio 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.