The hottest stock market story this week is AMC’s (NYSE:AMC) stunning surge. The struggling movie theater chain was left for dead as recently as last winter, with the stock at just $2. Given its overwhelming debt load, AMC seemed heading for bankruptcy. Now, though, the Reddit traders have gravitated to AMC, sending its stock up thousands of percent. This rally doesn’t come for free, however. Meme traders have likely had to sell other positions, such as Dogecoin (CCC:DOGE-USD) to fund their AMC purchases.
Indeed, it’s hardly surprising that meme stocks like AMC, Bed Bath & Beyond (NASDAQ:BBBY) and Express (NYSE:EXPR) are surging again now that cryptocurrency has crashed. Once crypto stopped going straight up, fast money traders wanted something new to focus on. With some brokerages such as Robinhood allowing traders to buy crypto and stocks directly out of the same account, it made it easy for money to rotate within these asset classes.
Meanwhile, the energy around Dogecoin is diminishing. That’s due to multiple factors, including the general cryptocurrency crash and the fact that Dogecoin’s fundamentals have come under increasing scrutiny in recent weeks.
However, another huge problem is that the “Dogefather,” Elon Musk, has toned back his enthusiasm for Dogecoin a bit.
Musk Backs Off Dogecoin
One of the big drivers of Dogecoin’s run-up to almost $1 each was Elon Musk’s vigorous endorsement. Previously, Musk had taken a favorable view toward most crypto assets, including Bitcoin (CCC:BTC-USD). Tesla (NASDAQ:TSLA), for example, accepted Bitcoin for vehicle purchases.
Last month, however, Musk dumped Bitcoin, citing concerns over energy efficiency. Instead, Musk said he was working with Dogecoin’s developers to try to boost it as an alternative to other cryptos for faster and less energy intensive transactions. Musk also went on Saturday Night Live around this time to spread Dogecoin’s message.
Since then, though, Musk has shifted again. Now, he’s taking a more conciliatory stance toward Bitcoin with an overarching emphasis on helping the cryptocurrency ecosystem as a whole prosper. As part of this, he’s made amends with some of Bitcoin’s biggest backers. That’s all fine and well. However, it cuts against the Dogecoin-as-superior-to-Bitcoin narrative that he had previously been building.
Some Positive Signs
It’s not all bad news for Dogecoin. The price bounced on Wednesday after a long downtrend. For one thing, Musk posted a new tweet about Dogecoin showing a photo from his supposed youth with the Doge symbol superimposed. This reignited some trader attention in Dogecoin.
Another important development is that Coinbase (NASDAQ:COIN) is allowing inbound transfers of Dogecoin on its Coinbase Pro platform. This should give the currency more liquidity and usefulness, as Coinbase is one of the most trusted crypto exchanges in the U.S. On the surface, just being on another crypto exchange might not seem to be that big of a deal. However, being accepted by Coinbase helps to bolster the view that Dogecoin is becoming a serious crypto asset rather than just a passing fancy.
Dogecoin was born a meme. And, despite some efforts, it has largely failed to become a more serious piece of technology or investment asset, at least so far. Its price lives and dies on things such as celebrity endorsements, tweets and Reddit posts.
And, let’s be frank, Dogecoin is last month’s story. Right now, all the meme energy is focused on AMC and similar stocks with short-squeeze potential. As long as that is the case, Dogecoin isn’t going to fare well.
Now, to be clear, the internet’s energy can turn on a dime. Within a few weeks, the stock enthusiasm could end and attention might come back to crypto. It’s possible. But until you see some sign of it, Dogecoin will be a risky trade. Given the lack of much underlying fundamental value to Dogecoin, its price is particularly prone to swings based on sentiment. That’s a dangerous place to be right now, as traders have shifted their focus elsewhere.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.