Dogecoin Needs More Than Sentiment to Be Relevant

Dogecoin (CCC:DOGE)is one of the latest equities to get caught up in the latest mania to seize the market. The cryptocurrency surged as high as 7 cents on Friday, but has since fallen back to three cents at the time of this writing.

A stock image of a gold Dogecoin (DOGE) on a green textured background.

Source: Shutterstock

So why is Dogecoin, a cryptocurrency that even its founders admitted was created as a joke, garnering such attention from the trading mob. At least one article I read suggested that it’s due to the power of public sentiment. I think it’s an example of opportunism run amok. But the point of these articles is for you to decide. So let’s get on with it.

Change is Afoot

The article I was referring to was written by Noelle Acheson, CoinDesk’s head of research. Acheson cites that public support, or sentiment, may be a new fundamental for a new generation of traders.

When making her point, Acheson was specifically speaking about GameStop (NYSE:GME). In her view, the people (admittedly like me) who say the fundamentals of GameStop have not changed are wrong. Her argument is as follows:

One, there’s the massive publicity. Two, aside from the potential future revenue from selling games, there is probably a merchandising opportunity through branded mugs and pitchforks. Three, there’s a groundswell of support for the share price – only this is not traditionally considered worthy of consideration in asset evaluation. It should be.

I agree with Acheson on points one and two. Its number three that I take issue with. Throughout the events of last week, I saw many retail traders exclaiming on social media that they knew exactly what they were doing. And I don’t disagree that many of them did.

But nowhere did I hear them say that they were doing it because they had some strong belief in GameStop’s future business fortunes. Nowhere did I hear them talk longingly about entering a brick-and-mortar GameStop and buying that vintage edition of Shrek: Smash & Crash.

No, instead what I heard was that they were doing it to prove a point. And they may very well have done that. But that’s not because the traders support the business. They just see an opportunity to either make a buck or prevent someone else from doing so.

Opportunism Is Not Belief

Later in the article, Acheson brought Dogecoin into the argument using the now-legendary Elon Musk tweet that got the cryptocurrency soaring higher. But it’s since given up those gains.

Once again I would challenge the assertion that Dogecoin was bid up because of some overarching belief in its value. Instead, like GameStop before it and silver after it, it’s being driven up because it can be.

Let me be perfectly clear. Traders can do whatever they want. There is nothing illegal in anything that they did. But to cynically drive the price of an equity up in order to punish another party is actually the opposite of public support.

Value May Be Subjective But It Still Matters

Acheson makes some excellent points in her article about why cryptocurrency has a future. It’s a future that I have been reluctant to embrace. And I agree that believing in that future relies on putting aside some of our preconceived notions of what constitutes value. But it also implies that an asset has value that is more than in the eye of the beholder.

In fact, Tesla (NASDAQ:TSLA) is a good example that seems to make Acheson’s case. Throughout 2019 and the first half of 2020, shares of Tesla continued to move higher despite many analysts talking down the stock based on traditional fundamentals. And yes, some of Tesla’s great leap was due to some investors indulging their fear of missing out.

But that wasn’t the only reason. For many people Tesla is more than a car company. To them, it’s a technology company and the real value has yet to come. In this case, they’re not ignoring the fundamentals, they’re saying that Tesla is miscast.

Should Dogecoin Be Part Of Your Digital Wallet?

In the world of cryptocurrencies that are available to you, Dogecoin is not miscast. It has some utilitarian value as a measure of social network currency. Otherwise, it seems to be little more than a trinket.  Can owning some Dogecoin hurt you? Probably not. But it’s something that will probably have as much value as the unused Chuck E. Cheese tokens that my kids threw out.

In other words, it only has value in a very limited set of circumstances, and because unlike other cryptocurrencies there will not be a preset limit on Dogecoin, its value will always be fairly limited. Continue to do your research and remember that this is still a sector full of risk and volatility.

On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.

Article printed from InvestorPlace Media,

©2023 InvestorPlace Media, LLC