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Stick to Serious Cryptos and Don’t Bother with ‘Jokecoin’ Dogecoin

Can Dogecoin (CCC:DOGE-USD) hold steady, or move higher, on Elon Musk’s trolling alone? Anything is possible. Plus, with major cryptocurrencies like Bitcoin (CCC:BTC-USD) trading near all-time highs, it’s hard to see altcoins or even “jokecoins” like this one collapsing anytime soon.

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

The overall move into crypto may help keep this name’s trading prices steady. But, even with the social proof of billionaire endorsements (not just from Musk, but from Mark Cuban as well), don’t expect serious institutional money to start diving into it.

Why? It may have online hype on its side, but this enthusiasm alone isn’t enough to convince the financial community at-large that it’s a fantastic vehicle to serve as a store-of-value. Plus, there’s little about its utility that indicates it has an edge over other cryptos.

You may be feeling fear of missing out (FOMO) for not buying this crypto — today trading for over 12 cents — back when it traded for below a penny. Now, though, it’s likely too late to ride the wave. Unless we see a major development in its use (i.e. something more substantial than a celebrity tweet), it’s going to be hard for it to gain much further from here.

And if cryptos experience a crash? Names like this one, with little in the way of utility or “smart money” inflows, have the most room to fall. So, if you’re interested in crypto, skip out on this one and stick to more serious plays.

You’re Not Missing Much Skipping Out on Dogecoin

What’s the bull case for DOGE? In a nutshell, the expectation that the “meme” behind it will continue to gain momentum, that more investors will pile in and that prices could start soaring another tenfold, towards $1 per coin.

Putting it simply, going long Dogecoin is basically a bet on the “greater fool” theory. In fact, that’s how our own Chris MacDonald described it on Apr. 1, in his bearish take on this altcoin. Sure, skeptics of cryptocurrencies in general may say the tremendous rise in Bitcoin, Ethereum (CCC:ETH-USD) and other major crypto prices has been “greater fool” theory at work.

But, if you look at the details, it’s clear that this is not the case. Granted, there are many investors who have done little research on cryptos and the blockchain but are long this asset class anyway, due to its upward trajectory. Even the bull case I recently made for Bitcoin hinges as much on FOMO as it does on fundamentals.

Yet, unlike Dogecoin, BTC and ETH have store-of-value and utility bona fides that DOGE lacks. Again, this doesn’t mean prices are set to head lower anytime soon. The bull market in crypto could help support it at today’s levels. But, with little more than online hype backing it up, it may be tough for this name to make additional parabolic moves from here.

Very Vulnerable If Cryptos Collapse

Bullishness around crypto remains off-the-charts. Given the heavy amounts of money printing that central banks are doing, that’s more than understandable. Eroding faith in fiat currency has been to the benefit of this asset class. However, this alone doesn’t guarantee that we won’t have another crash like the one seen in 2018.

Sure, unlike last time, major cryptos like Bitcoin have less downside risk. With institutional capital backing it up — not just speculative retail money — the odds of falling from today’s prices back to prior lows seems minimal.

Yet, that may not be the case for more niche cryptos like Dogecoin. Instead of a moderate pullback (such as 20% to 30%), a crash could mean a tremendous collapse in the price of DOGE. I’m talking 75%, 80% or perhaps even a 90% decline from today’s prices.

As discussed above, upside potential from here is questionable. But, with little more than hype backing it up, downside risk is massive. In short, the risk-return proposition here is not to your advantage.

Looking for Crypto Exposure? Buy Quality, Not Memes.

Many factors have played a role in sending Bitcoin, Ethereum and other cryptos to all-time highs. But the epic rally in Dogecoin has been built almost entirely on hype.

Admittedly, this alone doesn’t mean the party can’t continue. While it’s grown in popularity, so far you can’t buy it through major platforms like Coinbase (NASDAQ:COIN). But, if this changes, the coin could benefit from wider accessibility.

Yet, it’s not wise to go long, just in hopes that irrational speculation carries on. As I said above, the risk-return here isn’t in your favor — especially given the tremendous downside risk if crypto markets wind up crashing in the immediate future despite the factors on their side.

In short, don’t bark up the wrong tree by buying Dogecoin for crypto exposure. Buy quality, not memes.

On the date of publication, Thomas Niel held a long position in Bitcoin. 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-stick-to-serious-cryptos-dont-bother-jokecoin/.

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