Is this popular crypto still a buy after jumping 25%?

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Thanks to meme-stock mania, a phenomenon that has spread to the cryptocurrency market, Dogecoin (DOGE 1.59%) has seen its price skyrocket by more than 11,000% between the start of 2021 and the beginning of May from this year. But from then until the end of 2022, the token lost 90% of its value.

With the new year comes new excitement. Dogecoin is already up 23% year-to-date. Does that mean investors should buy the dog-themed meme token right now?

Soaring in 2023

It’s easy to attribute Dogecoin’s price rise this year to the fact that cryptocurrencies are extremely volatile, but there might be a better reason. Last year, the Federal Reserve quickly raised interest rates to curb soaring inflation. And that caused investors to avoid riskier assets. As a result, the value of the crypto market has grown from around $2.2 trillion at the start of 2022 to $800 billion by the end of the year.

But with inflation continuing to show signs of slowing down in December, the market could be counting on the central bank to halt or even reverse its rate hike policy. And that could be an advantage for risk assets, which may explain what investors are seeing not only in the crypto market, but also in some growth tech stocks.

In addition to general macro factors, Dogecoin could also benefit from the support of one of its most vocal proponents, Elon Musk. In addition to tweeting frequently about Dogecoin, which could send its price up and down like a roller coaster, the tech visionary and CEO of Tesla explained how he plans to integrate payments into Twitter, the popular social media service he bought at the end of last year. Although Musk has never said anything definitive, supporters are quick to speculate. If Musk has made Dogecoin Twitter’s official payment mechanism, it’s easy to see why the price could rise further.

Despite Dogecoin’s price gains in 2023, the token is still down around 89% from its all-time high reached in May 2021. Market cap of over $11 billion makes it the ninth largest network today world’s most valuable crypto.

Focus on what matters

Successful investing requires a truly long-term perspective, which means planning for at least five years. Although it is very tempting to bet on short-term price movements, especially in the crypto market, it is a surefire way to lose your money. With this framework in mind, the best thing to do is to find assets that you are comfortable owning for several years.

With Dogecoin, I’m not sure investors can say they would like to own it for the long term. Although it has strong community and social recognition, it has no competitive advantage among the more than 22,000 existing cryptocurrencies. Bitcoin, for example, is currently a much more promising store of value and has much greater potential to become a payment mechanism in the future. It has a fixed supply cap of 21 million. Additionally, there is an expanding ecosystem of Bitcoin-oriented financial products and services.

Compare that to Dogecoin, with 133 billion tokens in circulation and 10,000 new ones being created every minute. This swelling supply base does not make Dogecoin a strong investment candidate.

Even though cryptocurrencies in general, and Dogecoin in particular, can quickly skyrocket as they have for the past few weeks and most of 2021, I still don’t think investors should be rushing to add it to their portfolios. Yes, having a strong community of supporters can be an advantage for the price, but enthusiasm can instantly turn to pessimism, as happened in 2022. Moreover, betting on renewed market interest does not is not a solid investment strategy.

In my opinion, it is better to switch to Dogecoin.

Neil Patel has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin and Tesla. The Motley Fool has a disclosure policy.

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