11/1/2022 | The Motley Fool

Dogecoin Is Pumping, but Should You Get In On the Rally?

Dogecoin Is Pumping, but Should You Get In On the Rally?

Speculation continues to build about a possible Dogecoin integration for Twitter coming soon.

Now that Elon Musk has officially acquired Twitter (TWTR), the price of Dogecoin (DOGE -9.00%) is pumping. It was up 40% in just two days this week, due to the many indirect links between Twitter, Musk, and Dogecoin. As a result, Dogecoin backers think that the world's most popular meme coin is finally going to the moon. Across Twitter, they are posting their support of Musk and publicly speculating about the future value of their Dogecoin holdings.

However, those hoping for a sustained Dogecoin rally could be getting ahead of themselves. We've seen this same story before, and the highest that Dogecoin has ever gone in its nearly 10-year existence is $0.74. Right now, Dogecoin is still trading for just $0.085. Below are two reasons why I'm skeptical about a future long-term rally in Dogecoin.

The Elon Musk effect has spun out of control
The primary factor to consider is something the mainstream financial media has referred to as "The Elon Musk Effect." Quite simply, it's the fact that Musk has been a longtime supporter of Dogecoin for several years now, and that everything he says about Dogecoin seems to move the market. Musk has referred to himself as "The Dogefather" and has shared countless tweets about the future potential of Dogecoin. In one particularly memorable meme that he shared back in 2020, Musk suggested that Dogecoin might actually become the universal standard of the global financial system.

While the link between Musk and Dogecoin has been well established, Dogecoin bulls seem to be overdoing it with Musk's Twitter acquisition. Back in April, the price of Dogecoin popped 30% on news of a potential Twitter deal. At that time, Musk did speculate about making Dogecoin a payment option on Twitter, so no one could argue that a higher valuation might be in order. But the price of Dogecoin promptly fell as the acquisition saga dragged on.

Now that the deal has been finalized, the upward moves in Dogecoin are becoming even more speculative. According to some crypto enthusiasts, just seeing a brief video clip of Musk carrying a sink into Twitter HQ was enough to send Dogecoin up 15%. Let that sink in. We're getting into some serious speculative territory here.

Lack of a catalyst for a long-term rally
The latest buzz is that Twitter could be working on a new cryptocurrency wallet for users making deposits and withdrawals of crypto. This rumored move would seem to support the idea that Twitter could eventually transition into a "super app" along the lines of China's WeChat. Recently, Musk has referred to this super app as "X, the everything app."

The important point here, though, is that the speculation about a crypto wallet did not come from Musk, Twitter, or even a Dogecoin developer. Instead, it came from a tech blogger who acknowledged that she didn't know any exact details about the wallet, or even if the wallet would support Dogecoin. As might be expected, this rumor started with a single tweet. In short, we don't have a real catalyst for a long-term rally in Dogecoin, just a lot of hype and buzz.

Should I buy Dogecoin?
Until there is firm, concrete proof that Twitter is going to embrace Dogecoin as a payment option or make Dogecoin the centerpiece of its future crypto wallet strategy, it is simply too speculative to start buying Dogecoin now. A massive pump of 40% might sound impressive, but that only means that the price of Dogecoin "soared" from $0.06 to $0.084. We're getting excited here about a mere pennies move in the price. For the preceding 18 months -- almost the exact span of time since Musk famously appeared on Saturday Night Live as "The Dogefather" until the Twitter deal was finalized -- the price of Dogecoin had seemingly done nothing but decline in value.

That being said, if you do have any Dogecoin remaining in your crypto wallet, I wouldn't sell it quite yet. If traders are going to bid up the price of Dogecoin by 15% every time Musk carries a sink into Twitter HQ, you can probably still eke out a few extra cents in value for your Dogecoin investment before selling it off later.

Should you invest $1,000 in Dogecoin right now?
Before you consider Dogecoin, you'll want to hear this.

Our award-winning analyst team just revealed what they believe are the 10 best stocks for investors to buy right now... and Dogecoin wasn't one of them.