Bitcoin‘S (CRYPTO: BTC) The price has more than doubled in the past twelve months and is hovering around an all-time high. The approval of its first ETFs (spot price exchange-traded funds) in January, their halving in April, two interest rate cuts and Trump’s election victory set off a rush of bulls.
But Dogecoin (CRYPTO: DOGE) – originally created in 2013 as a parody of Bitcoin and named after a Shiba Inu dog – has more than quadrupled in the past twelve months. In the past, Dogecoin’s price was often determined by Elon Musk’s unpredictable tweets about the cryptocurrency. He even made Dogecoin acceptable for payment at his car company, Tesla, for certain purchases in 2022.
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Dogecoin’s latest rally was mainly fueled by Trump’s election victory. The rally swelled after Trump said he would appoint Elon Musk and Vivek Ramaswamy to lead the planned Department of Government Efficiency (DOGE) to root out wasteful government spending. That news – along with Trump’s pro-crypto stance – helped Dogecoin outperform Bitcoin. So should investors buy this smaller meme coin instead of Bitcoin today?
Dogecoin was created based on the open source code for Litecoinanother token that was previously forked or spun off from Bitcoin’s blockchain. Like Bitcoin and Litecoin, Dogecoin tokens were mined using the energy-intensive proof-of-work (PoW) consensus mechanism. But to differentiate itself from other PoW tokens, Dogecoin developers launched a new hashing algorithm called Scrypt, which consumed less power and processed transactions faster.
That upgrade caught the attention of online supporters, who dubbed themselves the “Doge Army,” as well as high-profile investors like Musk, Mark Cuban, Snoop Dogg, Kevin Jonas and Gene Simmons. As a result, Dogecoin’s price rose to an all-time high of $0.73 on May 8, 2021 – representing a 47.279% gain from the earliest trading price of $0.001540753 on January 23, 2014. That rally would have required an investment of $10,000 delivered. to $4.7 million.
But today that same investment would be worth about $2.4 million. Two major challenges prevented Dogecoin from becoming the next Bitcoin Ethereum. Firstly, Dogecoin is an inflation token with no supply limit. At the time of writing, there are 150 billion Dogecoins in circulation, and that supply is growing at approximately 10,000 tokens per minute. Bitcoin has a maximum supply of 21 million tokens, and 19.8 million of those tokens have already been mined. That scarcity makes Bitcoin more similar to gold and other physical assets than Dogecoin.
Second, Dogecoin does not natively support smart contracts, which are used to develop decentralized apps (dApps), non-fungible tokens (NFTs), and other crypto assets. Proof-of-stake (PoS) blockchains like Ethereum support smart contracts, so they are often valued based on the popularity and size of their developer ecosystems. PoS tokens can also be “staked” (locked) on the blockchain to earn interest-like rewards. For comparison: Shiba Inuwhich was created in 2020 as a parody of Dogecoin, is an Ethereum-based PoS token that supports staking and smart contracts.
Simply put, Dogecoin’s blockchain is faster than Bitcoin’s, but its inflationary nature will prevent it from becoming as scarce as Bitcoin. The lack of support for smart contracts also limits its appeal among developers, who would choose Ethereum or other PoS blockchains to develop their apps and tokens.
Dogecoin may be in the spotlight right now, but it’s still trading well below its all-time high as it hasn’t solved its most pressing problems. After the current news cycle cools, the country will likely give up much of its post-election gains.
Meanwhile, Bitcoin should have more staying power as it becomes the equivalent of digital gold for many investors. The planned halvings, which halve mining rewards every four years, should consistently increase supply and increase its value.
More institutional investors could buy Bitcoin, and more inflation-ridden countries could embrace the token as a national currency. Therefore, Bitcoin may not be as exciting or meme-worthy as Dogecoin, but it will likely be a better long-term investment for most investors.
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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.
Should You Forget Bitcoin and Buy Dogecoin Instead? was originally published by The Motley Fool
