The last time I covered Dogecoin (DOGE-USD) for Seeking Alpha was late December 2022. I called it my top crypto bear pick for 2023. It was 8 cents at the time. While the coin did eventually trade down to under 6 cents last summer, DOGE is at 11 cents as of article submission. As we learned with MakerDAO (MKR-USD) last year, I do occasionally get these crypto calls wrong.

I’m now of the opinion that DOGE may go higher. I still don’t think it’s a great long-term investment. But I’m willing to upgrade from sell to hold. In this update, I’m going to again reiterate some of the logic from my last article and provide updates to some key network metrics that are surprisingly encouraging.

My Previous Bearish Arguments

In the closing summary of my bearish view from late 2022, I couldn’t justify the existence of a cryptocurrency that was created as a joke having such a significant market capitalization. My view at the time was that the Dogecoin “meme” was getting stale, and the coin would underperform going forward:

Dogecoin is an important cryptocurrency for many of the wrong reasons. It was never meant to be taken seriously but it road a massive wave from a fraction of a penny in January of 2021 to over 73 cents just a few months later. In the time since, it has sold off more than 90% but it still could have much lower to go. The coin surged because of Robinhood buyers who now appear to be selling.

But beyond just my own personal opinion about what I think a cryptocurrency network should aim to provide its user base, the reality in December 2022 was that DOGE wasn’t widely being used for any economic purpose and the coin’s holder base was highly centralized with Robinhood (HOOD) users holding about a quarter of the coin’s total supply.

To be clear, with 65% of the coins controlled by “whales” and “investors,” the centralization issue is still a major concern of mine. And it’s one of the big reasons I still can’t bring myself to calling DOGE a buy, as there is quite a bit of supply that could be motivated to sell on any rip. However, the usage of the network does appear to be improving, in part, because of Bitcoin’s (BTC-USD) failure to be an inexpensive medium of exchange for smaller transactions.

Network Data

Dogecoin originally came about in 2013 and with 10 years now in the wild, DOGE is considered to be one of the “OG” proof-of-work coins that includes other payment-focused cryptocurrency networks like Litecoin (LTC-USD), Bitcoin Cash (BCH-USD), ZCash (ZEC-USD) and Dash (DASH-USD). I like to compare DOGE with these coins when it pertains to network data because they’re similar attempts at cryptocurrencies and are often forks of (or forks of forks of) Bitcoin. One of the key ways to compare them is with Daily Active Users:

I would encourage readers to enlarge the chart above, so the trends are easier to see. But my general takeaway is that after Litecoin initially enjoyed the DAU spike when Bitcoin’s on-chain transaction fees mooned in November and December, it is now Dogecoin that is showing the strongest uptrend in average DAUs. Consider the month-over-month changes in DAUs between January and February in the table below:

Source: Coin Metrics, Author’s calculations. *As of 2/27/24

Going back to the Bitcoin fee spike, Dogecoin has gone from just 46k average DAUs in November to nearly 219k in February. The DOGE DAU trend is admittedly highly volatile, but the network has had more DAUs than Dash, Litecoin, Bitcoin Cash, and ZCash each of the last 3 months. This usage is leading to an increase in fees:

While Dogecoin’s monthly fees are minimal compared to networks like Bitcoin or Ethereum, the growth in both fees and DAUs is a clear indication that there is growth in network usage.

What also may help justify the continuation of the Dogecoin network for longer than I’ve expected is the fact that DOGE is historically a highly profitable coin to mine. As of article submission, it’s more profitable to mine Dogecoin than Bitcoin Cash.

Risks

Still, there are plenty of risks in longing DOGE even at these levels. There are 143.2 billion dogecoins in existence and there is no supply cap on this coin.

There will be 172 billion by the end of the decade as miners are paid out by new coins issuance. This isn’t the worst level of coin supply inflation that will happen by 2030, but it is still a fairly significant level of coin dilution. If the joke is still funny by then, perhaps there will be new buyers to soak up that supply. I certainly have no plan to be one of those buyers. Also, utility doesn’t necessarily equate to value in public blockchains. Case in point, Litecoin is used far more for payments than Dogecoin is and still has more DAUs, yet LTC’s market capitalization is about a third of Dogecoin’s.

The other risk to consider is the possibility that this time really is different. We’re quickly approaching a Bitcoin halving in April. The front-running demand for BTC is coming through ETF products rather than through on-chain retail investors. It’s possible, if not likely, that the “altcoin season” many in crypto have come to expect near big Bitcoin rallies won’t be nearly as widespread as we’ve seen during previous manias. Time will tell on that.

Summary

My view has been that Dogecoin is a meme and nothing more. Turns out that may not be true. For better or worse, Dogecoin has more DAUs than other “OG” proof-of-work coins that I believe offer better functionality and better utility. We can’t rule out the possibility that buyers will once again flock to DOGE at some point during 2024. While I’m still staying away, swing trading DOGE may bear some fruit as Bitcoin quickly approaches a new all-time high.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.