I threw some money into DOGE as an Elon-fanboying, internet-participating joke, but now I’m taking it seriously. This article is a brief fundamental analysis of why I think it will hit at least 1.50, probably closer to $3, and perhaps more, by the end of 2024.
I. Better utility than XRP and LTC
Litecoin has long been analogized as the silver to bitcoin’s gold, based on the fact that it is a cheaper coin of otherwise similar functionality. The key feature difference is simply faster confirmation time, and DOGE confirms about 250% faster – or about one minute per confirmation.
XRP has a weird relationship with the company Ripple, which many will argue is not technically the parent company of the cryptocurrency but they are practically wrong because the same humans created the currency and the company, albeit they technically made the company later.
From a feature perspective, XRP confirms about 10x quicker than DOGE, but it cannot be mined, so there is little incentive for people other than t-1 owners to participate in verification. All XRP were created in a 1-time event at XRP creation time, and about 80% were gifted to Ripple. Ripple still owns 60% of the coins. Some will argue this is not a security concern because XRP uses a consensus mechanism instead of proof-of-work, but Ripple also controls the Unique Node List (UNL) that states which nodes get to approve consensus, and many (most?) UNL nodes are ripple-owned. Technically this isn’t total control, but imo it’s certainly an excess influence, not to the benefit of the community, uber sus, and with a poor incentive and feature set.
DOGE is mineable, giving it an incentive structure that I think is preferred to XRP, but it also confirms fairly quickly.
II. The 3% Dominance Rule
What separates DOGE from the millions of low-value copy-coins? Market dominance. Basically, social network effects drive much of crypto value, and most coins never obtain enough widespread usage to generate any value. On the one hand, you could say that DOGE obtained dominance as a joke, but on the other hand:
- It could be argued that the meme-like nature of DOGE makes it inherently more receptive to social network effects, and
- In some sense it doesn’t matter how the network was formed; it’s here now.
Again, comparing to LTC and XRP: XRP’s sus nature and poor incentives make it non-friendly to social networking, which is a key source of value loss. TradingView records market dominance by coin back through mid-2017, although number crunchers can roughly compute this metric through 2015 or so. Since mid-2017, LTC dominance has maxed around 2.8%, which it touched a few times through the years, and only in late 2020, more than 3 years later, did dominance go below 1%.
Let’s generalize from LTC by saying that LTC has been a major coin. We will define a major coin as a coin that achieves 3% market dominance. First, this is a conservative rule that means a newcomer will have to beat LTC’s record to be considered major. Second, I know that LTC had achieved super-3% dominance prior to mid-2017.
The idea here is that major coins decay slowly because there is a social network attached to them. DOGE recently hit 3.8% market dominance and has achieved major coin status. By the logic of the major coin rule, we should expect it to retain dominance in excess of 1% for at least the next 3 years.
III. The Inflation Factor
A trivial analysis would say “So DOGE is at least as good as LTC, so why wouldn’t DOGE rise in price to LTC?” The answer is that DOGE is inflationary and we need to account for the money supply.
Instead of directly comparing DOGE to LTC at this point, let’s leverage the major coin rule in a conservative fashion (remember when I predicted the rise of BTC using conservative prediction?).
A conservative treatment of the major coin rule says: Suppose DOGE has 1% market dominance three years from now.
Now, suppose the market grows normally for the next three years. Coinmarket shows that a log scale does a good job of explaining total crypto market cap growth since 2013 or 2014:
The total market cap is at about 2.5T now. My big call out from the graph above is that COVID hasn’t really disturbed the general trend, so I think this excellent logarithmic analysis from Ben Cowen in 2019 essentially holds, wherein he argues that the total market cap will likely peak just over 11 T USD in 2023. He builds on this in a Feb 2020 video and is also still doing more current analysis. Check out his channel, I basically think his BTC price forecasts are correct around 2024.
I’ll use the 11 T USD number here as the value for total market cap 3 years from now. Technically it is a 2023 forecasted peak, but this would mean the normal 2023 number is lower, and 2024 will be normally higher than 2023 so it roughly cancels. This is all very rough ICYMI. 1% for DOGE means .1 T or 100B USD.
DOGE is often called inflationary, but in fact, it is disinflationary. That is, it is inflationary with an inflation rate that decreases over time. Specifically, it has inflation fixed at 5.256 billion coins per year, and we can see that this number decreases as a growth rate over time because the pre-inflation stock is larger each year.
Coinmarketcap indicates that there are currently 42,195,946,444 DOGE. Let’s call it 42 B for simplicity. Increase this by (5.26 B * 3 Years) and we get a per-coin price of:
100B Doge Cap Price / (42+15.78) Coins = $1.73 per coin. So that is my conservative prediction, and let’s just lower it to $1.50 because it’s a pretty number and it’s arbitrarily more conservative. However, I think realistically the 1% dominance assumption could be a substantial underestimate. I would not be surprised to see a value of 4.50 (3x higher), and my actual point estimate is around $3 (50/50 expected odds over-under, not the conservative estimate).
So there ya go! Keep in mind that Ben Cowen has called for a 2024 BTC price between 140k and 330k, so it’s not like DOGE is clearly the best choice but it still seems like a potentially great choice! Much will hang on how things settle down after Elon’s SNL event.
IV. Why Not Just Do a Regression?
I just bragged about predicting bitcoin’s price well ahead of time (I actually predicted the range of movements from 8 months up to a 10-year prediction, all correctly), so why don’t I just use regression as I did back then?
Because the spike on DOGE has been so acutely driven by Elon’s SNL arrival tomorrow, and it will wildly correct afterward. So we don’t have a stable baseline to extrapolate. Yes, I should revisit this article in ~3 months and run a plain regression to boost confidence. The reason I’m trying to get the word out now is that DOGE may very well have a positive correction instead of a negative correction after SNL, so I want to get the word out that I’m in support of it for the long haul now.
I expect major possible, not definite, volatility for DOGE over the next week. I think it’s more likely than not that DOGE remains in the range from 20 cents to 2 dollars over the next week, but I’m really not sure.
Fwiw, extrapolating the trend of the past 1-3 months easily validates a 3.50-plus price in a single year, let alone three, but I don’t consider that extrapolation remotely trustworthy.