Can Dogecoin Reach $1?

Dogecoin (CRYPTO:DOGE) has been one of the most talked about meme tokens of 2021. And for good reason -- it climbed 15,219% to peak in May. Its market share has gained so much that now it's the 10th biggest crypto player by that measure.

Today, Dogecoin is trading at about $0.17. Considering its momentum this year, it may seem highly possible that the token can quickly reach $1. But wait, not so fast. It's important to remember that Dogecoin has also slipped 76% from its peak. Let's take a closer look at this popular cryptocurrency to see what direction it may take in the future.

From 2013 to today

Two software engineers launched Dogecoin in 2013. It started out as a joke one of them made on social media, poking fun at the number of cryptocurrencies that kept popping up. But Dogecoin eventually attracted users and investors -- and picked up speed this year. The cryptocurrency has become particularly sensitive to comments made by Tesla CEO Elon Musk. For example, he tweeted this week about accepting Dogecoin as payment for some Tesla merchandise -- and Dogecoin soared more than 20% in a matter of minutes.

So, we know that Musk's words can push Dogecoin higher. But are there any other elements that could do the same? Right now, Dogecoin faces two issues that stand between it and a much higher valuation.

Primarily, Dogecoin doesn't distinguish itself among the thousands of cryptocurrencies out there. Players like Ethereum, for instance, offer a blockchain loaded with decentralized applications -- and the potential to reinvent the way business is done in many industries. Another example: A crypto such as Polkadot makes it easy to transfer data from one blockchain to another. Dogecoin doesn't offer something to set it apart from rivals. Instead, it's simply a currency. It's accepted by a few big names such as the NBA basketball team the Dallas Mavericks. But most of the 1,900 merchants that take Doge are pretty small.

Dogecoin's second challenge is its supply. An unlimited maximum coin supply means investors won't have the feeling that this asset is scarce -- and that's likely to hold back gains. About 14 million Doge are mined every day. More than 132 billion are currently in circulation.

A potential $132 billion market value

Now, let's circle back to our original question: Can Dogecoin reach $1? Today, if Dogecoin were to hit that level, its market value would reach $132 billion. That would put it in third place after Bitcoin and Ethereum in terms of market value. Such a position seems unlikely considering there are other players that offer more features and real-world utility than Dogecoin. So, I think Dogecoin may reach $1 only if the cryptocurrency market as a whole soars in value. Or Dogecoin could reach that level if it expands into other areas such as smart contracts. And of course, there aren't any guarantees that those things will happen.

I've held on to a very small Dogecoin position -- one that I bought as a fun element to add to my portfolio. But I wouldn't recommend going all in on this cryptocurrency. It's important to remember Dogecoin is high risk. Though cryptocurrency in general is risky, there are players that offer a bit more stability -- and much greater visibility.

This article first appeared in The Motley Fool.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Adria Cimino owns Dogecoin, Ethereum, and Tesla. The Motley Fool owns and recommends Bitcoin, Ethereum, and Tesla. The Motley Fool has a disclosure policy.