As the joke cryptocurrency that is no longer a laughing matter, the biggest risk to Dogecoin (CCC:DOGE-USD) is that its story could end there. Ashes to ashes, dust to dust as some might say.
As I’m writing this, though, enthusiasm for crypto is strong. Following some worrying price action last week, the market is off to a positive start this week. But if you’re thinking about diving into Dogecoin — perhaps because FOMO (fear of missing out) is kicking in — you might want to reconsider.
Its Declining Price Says it All
First, speculative trades in the meme stock arena have not performed well recently. Don’t get me wrong — in the bigger picture, these stocks delivered fantastic gains for speculators. But some of the most popular meme stocks are now struggling to garner technical support.
Dogecoin is in a similar situation. From where I stand, real-time data from Coinmarketcap.com reveals that DOGE’s trailing-seven-day performance is 22.5%. That’s incredible profitability. But you’ve got to put that information into context to get the full story.
At peak, Dogecoin was trading for around 74 cents in many exchanges. Compared to its current price of about 25 cents, you’re looking at a loss of approximately 65%. This type of volatility is not something that you can gloss over, especially when many young people are putting everything they can into DOGE.
Second, Dogecoin already signaled that it was moving lower. As I wrote for Blockster.com, DOGE printed a head-and-shoulders (H&S) pattern. And I would argue it’s not just a garden-variety H&S pattern, but a classic one — with volume trends confirming it. Thus, it doesn’t make sense to make a long-side bet on Dogecoin.
Could Dogecoin Have One More Bite at the Bone?
While I’m very skeptical that Dogecoin can rise above the muck, I don’t want to say it’ll never happen. In the wild crypto market, being absolutist in either direction is just asking to eat crow. Having done so many times before, I’m reluctant to add it to my regular diet.
Therefore, I’ll concede this much: if you want to day trade Dogecoin, there’s more than enough volatility to capture some quick profits. But the thing is, you need to perform your due diligence and learn not just more about DOGE, but also the laws restricting day trading. The Financial Industry Regulatory Authority (FINRA) offers insight into this practice.
Now, you might say that cryptocurrencies are not stocks and therefore, in theory, day trading rules shouldn’t apply to them. Spiritually, I agree. But the IRS doesn’t care what I think — and something tells me the tax agency is going to be very ornery about 2021 returns.
Anyways, DOGE is just weird and speculative enough that it might rise higher, even if other established cryptos tumble. Keep in mind this interesting tidbit from blockchain history: In September 2017, the New York Times posed the question of whether the crypto sector was in a bubble. Readers seemed to think so in the case of Dogecoin, and its creator warned that the rest of the sector wasn’t far behind.
Less than four years later, the market feels like déjà vu. But there are two takeaways here. On the negative side, we know in hindsight that the signs were correct: the crypto sector was in a bubble. But on the positive front, this circumstance proves that discernible bubbles can still grow to incredible heights before popping.
Dogecoin: Only for the One Percent
Technically, there is a non-zero chance that Dogecoin will move higher from here. But the debate is how close that figure is to 100%. For me, I’m not confident that it’s even near the 50/50 mark.
When determining Dogecoin’s potential, I go back to the H&S pattern. The neckline of the pattern suggests that upside resistance is now between approximately 36 to 40 cents. So unless DOGE breaks above this threshold — let’s say it moves to 45 cents — I’m not interested in putting (any more) money at risk.
What I can comfortably say is that the canine-inspired meme isn’t appropriate for 99% of investors. But if you’re the 1% that wants to swing for the fences, have at it.
Ready to start trading cryptocurrency but unsure of what to buy? Thomas Yeung found Dogecoin before it went up 8,000%… Cardano before it went up 460%… and Ripple before it went up 480%. Now, in a new report, he’s naming 13 of his favorite cryptocurrencies — tokens that could soar as high as DOGE. Claim your FREE COPY here.
On the date of publication, Josh Enomoto held a LONG position in DOGE. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
