Dogecoin Surges, But Is It a Better Bet Than Bitcoin?
Bitcoin (CRYPTO: BTC) has witnessed an impressive resurgence, more than doubling in price over the past year. Currently near its all-time high, the rise can be attributed to several key factors, including the approval of its first spot exchange-traded funds (ETFs) in January, its halving event in April, two interest rate cuts, and Donald Trump’s election win, which reignited interest among bullish investors.
In comparison, Dogecoin (CRYPTO: DOGE), initially launched in 2013 as a light-hearted parody of Bitcoin and named after a popular Shiba Inu dog, has outdone even Bitcoin by more than quadrupling in value over the last year. Historically, Dogecoin’s price largely reacted to the whims of Elon Musk’s social media activity. He further boosted its image by allowing Dogecoin to be used for select purchases at his electric vehicle company, Tesla, in 2022.
Image source: Getty Images.
The latest rally in Dogecoin was largely spurred by Trump’s election results. After his announcement of plans to appoint Elon Musk and Vivek Ramaswamy to head the new Department of Government Efficiency (DOGE) aimed at reducing waste in government spending, enthusiasm surged. Trump’s favorable stance on cryptocurrencies also contributed to Dogecoin’s impressive performance, prompting the question: should investors prefer this meme coin over Bitcoin today?
Understanding the Differences Between Dogecoin and Bitcoin
Dogecoin was built using the open-source code of Litecoin, which itself is a derivative of Bitcoin’s blockchain. Like Bitcoin and Litecoin, Dogecoin employs an energy-intensive method called proof-of-work (PoW) for mining. However, Dogecoin’s developers introduced a new algorithm known as Scrypt, which uses less power and has faster transaction speeds, setting it apart from other PoW cryptocurrencies.
This technical update attracted a dedicated following known as the “Doge Army,” along with prominent investors such as Musk, Mark Cuban, Snoop Dogg, Kevin Jonas, and Gene Simmons. Consequently, Dogecoin reached an all-time high of $0.73 on May 8, 2021, marking a staggering 47,279% increase from its launch price of $0.001540753 on January 23, 2014. A $10,000 investment made then would have escalated to approximately $4.7 million.
Challenges Facing Dogecoin
Today, however, that same investment would be valued at around $2.4 million. Two significant obstacles have hindered Dogecoin’s ascent to the level of Bitcoin or Ethereum. Firstly, Dogecoin is an inflationary token with no maximum supply. Currently, around 150 billion Dogecoins exist, increasing at a rate of 10,000 tokens each minute. In contrast, Bitcoin’s total supply is capped at 21 million tokens, with 19.8 million already mined. This scarcity gives Bitcoin characteristics similar to gold and other precious assets, a vital distinction from Dogecoin.
Secondly, Dogecoin lacks support for smart contracts. Smart contracts are essential for developing decentralized applications (dApps), non-fungible tokens (NFTs), and other digital assets. Platforms like Ethereum support these contracts, making them more appealing to developers looking to create new tools and utilities. Even Shiba Inu, a parody of Dogecoin created in 2020, benefits from being built on Ethereum’s proof-of-stake (PoS) framework, which allows staking and the execution of smart contracts.
In summary, while Dogecoin operates on a faster blockchain than Bitcoin, its perpetual inflation and lack of smart contract capabilities diminish its viability as a long-term investment option compared to Bitcoin.
Evaluating Your Dogecoin Investment
Currently riding a wave of attention, Dogecoin’s price remains significantly below its peak due to unresolved fundamental issues. As the news cycle settles, it is likely Dogecoin will lose many of its recent gains.
On the other hand, Bitcoin shows robust staying power, emerging as a digital equivalent of gold for many investors. Its regular halving events, occurring every four years, effectively reduce mining rewards and should exacerbate its supply constraints, potentially increasing value.
More institutional investors are likely to enter the Bitcoin market, while some countries struggling with inflation may adopt it as a form of national currency. Although Bitcoin lacks the playful charm of Dogecoin, it may offer a more promising long-term investment for most people.
Is Now the Time to Invest $1,000 in Dogecoin?
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
