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Dogecoin May Remain Popular, but Don’t Buy the Pullback

Dogecoin (CCC:DOGE-USD) has sold off since hitting prices above 40 cents earlier this month. Yet, it remains up tremendously compared to where it was before the bubble in it emerged. Crypto investors who bought into Dogecoin on Jan. 1 are sitting on a return of 5337.71%. And even those who bought in after its parabolic move in February have seen jaw-dropping gains in a short amount of time.

Dogecoin
Source: Shutterstock

That’s good news for those early movers. But, what about the rest of us? We may be kicking ourselves for not taking this crypto that started off as a meme seriously. And, we may have a serious case of FOMO, and are tempted to buy the recent dip.

Yes, it’s tempting. But, diving in now may not be the best move. How so? Sure, skeptics of Dogecoin could be proven wrong once again. Enthusiasm remains high, so prices could continue to rise.

Yet, the most likely outcome? Prices will trend lower, as it’s clear this coin won’t join the legion of established names like Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD). Both not only have the advantage of institutional (or “smart money”) investor interest. These higher-quality cryptos have a greater level of functionality as well.

So, the best move is to continue staying away? Yes. Going long cryptos with stronger fundamentals is still a worthwhile move. What about gambling on investor psychology by going long on this coin? It could be a long-shot that fails to pay off.

Dogecoin and the Challenges of Timing a Bubble

Admittedly, I was a bit early in calling a top in Dogecoin. Back on April 14, I made the argument why this “jokecoin” had limited runway. “Serious cryptos,” like Bitcoin and Ethereum, I wrote, were the better opportunities. At the time, prices were at half of where they stand today.

The takeaway: it’s not wise to call a top in assets in the midst of a bubble. The music can stop at any point. Or, the madness can carry on longer than expected. In other words, betting against something going up due to “greater fool theory” is in itself a fool’s errand.

However, it’s a bit of a double-edged sword as well. It’s risky to call a top in something that is irrationally going up in value. But, it’s also risky to chase such an opportunity. In some cases, you may be early enough to still profit. Other times? You can find yourself holding the bag.

It’s the same dynamic that played out with the “meme stock” mania that peaked back in February. When gambling on market psychology, rather than investing based on underlying fundamentals, you’re leaving way too much to chance. But, when taking into factors like utility and institutional interest, you can separate potential long-term winners from more flash-in-the-pan names. With Dogecoin fitting more into the second category, bank on continually lower prices from here.

Strong Chance the Bubble Around This Crypto Keeps on Deflating

As seen from its heavy coverage, both here on InvestorPlace, and on other platforms, Dogecoin’s popularity remains high. For now, this heavy interest may help to keep prices steady. Or, perhaps fuel another short-lived rally. But, in the long run, expect this bubble surrounding this trendy crypto to continue deflating.

Why? First, it still doesn’t hold a candle to major names like Bitcoin and Ethereum. Not when it comes to functionality. And definitely not when it comes to institutional investor interest. Without deep-pocketed buyers entering this market, those still holding today will need more retail investor interest to keep it either steady, or on an upwards trajectory.

Second, while its popularity remains high, interest among retail investors has likely peaked. It may be available for trading on Coinbase (NASDAQ:COIN). But, its available on other major crypto exchanges, along with brokerage apps like Robinhood. Any small investor who wanted to buy this has likely already done so.

In short, as the pool of enthusiastic buyers wanes, and those holding it get impatient and decide to cash out, chances are prices will continue falling back, toward prior price levels.

Bitcoin and Ethereum Remain the Best Crypto Plays

Sure, it’s not set in stone this crypto is set to trend lower from here. Its popularity may have peaked. But, if enough of its “fans” remain invested, we could see a scenario play out similar to what’s still happening with GameStop (NYSE:GME), this year’s biggest meme-driven investing success story. GameStop has fallen sharply from its highs. But, it still trades dramatically above its pre-meme price levels.

Yet, if you aren’t looking to bet on investor psychology, and just want exposure to crypto? Continue sticking with Bitcoin and Ethereum, and pass on Dogecoin.

On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. He did not hold (either directly or indirectly) any other positions in the securities mentioned in this article.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


Article printed from InvestorPlace Media, https://investorplace.com/2021/04/dogecoin-may-remain-popular-but-dont-buy-the-pullback/.

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