2021 was a breakout year for cryptocurrencies, with blockbuster returns across the board that sent the cumulative value of the sector beyond $2.9 trillion at its peak. But so far, 2022 has been the opposite, with that figure cut by more than half.
Controversial meme token Dogecoin (DOGE -2.61%) was among the best performers last year, clocking a 15,500% gain from its 2021 opening price to its all-time high of $0.74. But unfortunately for investors who bought in near the top, Dogecoin has lost 88% of its value, and trades at $0.08 as of this writing.
Elon Musk, the CEO of electric vehicle giant Tesla, sparked Dogecoin’s initial surge by accepting it as payment for company merchandise. Now, he says his space exploration company, SpaceX, will also begin accepting the token soon. So, what really stands in the way of Dogecoin revisiting its all-time high, or even reaching $1?
There are a few hurdles
Cryptocurrencies are broadly popular for their decentralized, unregulated nature, which has previously allowed holders to remain anonymous and, in some cases, escape tax obligations. But that could all change for U.S. citizens as soon as next year under a set of proposed laws that would require cryptocurrency brokers to report their clients’ trading activity to the IRS. In addition, cryptocurrency exchanges could be bound by strict new compliance rules as the Securities and Exchange Commission (SEC) seeks to classify tokens as securities.
These changes will likely dampen the appeal of cryptocurrencies for many retail investors, in addition to driving up the cost of trading them. Unfortunately, that’s bad news for tokens like Dogecoin that are more speculative than they are useful.
That raises another key issue: adoption. The endorsement of Musk and his companies is positive; Dogecoin is still holding onto a tenfold gain since the Tesla merchandise announcement. But that one deal hasn’t been enough to arrest the strong downtrend since the hype wore off, exacerbated by the fact that only 2,058 merchants accept the token as payment, worldwide. It’s worth noting, though, that another one of those merchants is the global luxury fashion brand Gucci.
The bottom line is that if consumers can’t spend Dogecoin every day to buy their favorite goods and services, then this will remain a barrier to the widespread adoption the token needs to generate meaningful price gains from here.
Reaching $1 is unlikely, but not impossible
There are approximately 134 billion Dogecoin tokens in circulation right now. At the current price per token of $0.08, their combined value stands at $11 billion. That means if the price were to soar to $1, the total value of all Dogecoin tokens would simply be $134 billion.
That’s a lofty figure and it would take the discovery of some serious utility for the meme cryptocurrency to reach such heights, but compared to its peer Shiba Inu, it’s not outside the realm of possibility.
There are currently 589 trillion Shiba Inu tokens in supply, so if that cryptocurrency hit $1 it would command a market valuation of $589 trillion. That’s greater than the value of all the recorded wealth on Earth right now. Suddenly, $134 billion doesn’t sound so ridiculous.
How Dogecoin could get there
It’s clear that Tesla’s willingness to accept Dogecoin for minor goods hasn’t given the token the long-term lift many investors expected. It’s therefore unlikely that expanding this initiative to SpaceX will make any meaningful difference. In fact, without broad-based adoption, Dogecoin is going to struggle to hold onto any gains it manages to generate.
Shiba Inu is trying to boost its price by instead burning tokens to remove them from circulation forever, reducing the overall supply and, in turn, lifting the value per token organically. Unfortunately for holders, a rise in the price per token will be entirely offset by the loss incurred when their own tokens are burned in proportion, in theory, if the move works as intended.
The metaverse is one way Shiba Inu developers are facilitating the burn. Dubbed SHIB: The Metaverse, the virtual world will serve as a meeting place for the Shiba Inu community with over 100,000 virtual plots of land purchasable using the Ethereum (CRYPTO:ETH) cryptocurrency. Owners of those plots will have the ability to use their Shiba Inu tokens to assign a name to them, and those tokens will be removed from circulation forever. It’s unlikely this will result in enough tokens being burned to meaningfully impact the price, but it does offer additional utility for token holders which is a value-add, although a mild one.
This isn’t something that’s in the works for Dogecoin right now, but even if it were, the result would be cosmetic in nature and it wouldn’t drive an increase in actual value. Instead, Dogecoin is existing in a proverbial no-man’s land, caught between speculative efforts to lift its price and novelty initiatives by enthusiasts like Musk, who is trying to add credibility to the meme token.
Unfortunately, neither of those things is likely to send Dogecoin to $1.