Proponents of Dogecoin (CCC:DOGE-USD) have reason to celebrate as recent news adds utility and big names lend their support.
That spike in interest is reflected in increased prices for the speculative and controversial cryptocurrency. However, as soon as the argument for utility started, it looks like the argument is weakening.
Sure, it may be making some headway. But is it really enough to move the needle in the longer term? I’d say no. What investors really have here are a few short term catalysts that mean little to the bigger picture. Since I believe that is the case, I’ll look at the latest news and discuss why you shouldn’t be fooled by the temporary boost.
Dogecoin’s Fledgling Utility
The economic theory underpinning the recent spike in Doge prices follows simple logic: The more uses that Dogecoin has in the real world, the greater the demand for it. Connect that increased utility to a hot topic or two, and voila, it’s a recipe for a price spikes.
So, when AMC (NYSE:AMC) CEO Adam Aron conducted a poll on Twitter (NYSE:TWTR) on Sept. 22 asking if his company should accept Dogecoin, prices spiked.
This spike shouldn’t tempt you to initiate a position in Dogecoin though. There are two reasons that I believe that to be the case.
First of all, the ability to use Dogecoin to purchase AMC tickets doesn’t do much. I can’t imagine many consumers care that much. If you’re a Doegcoin HODLer why would you even want to spend precious DOGE to purchase movie tickets? It’s not a particularly compelling use case and DOGE enthusiasts probably want to sit on their assets anyway. If DOGE goes to the moon, they’d probably feel like idiots if they spend $12 of it to see a movie.
But the bigger truth is, there is no such utility. Like Aron said, if polled respondents like the idea, then AMC will explore it. It doesn’t make it an automatic guarantee.
AMC simply has plans to build use cases for Dogecoin, but don’t be fooled. It still has very little utility. In the poll Aron said the company would accept Bitcoin (CCC:BTC-USD), Ethereum (CCC:ETH-USD), Litecoin (CCC:LTC-USD), and Bitcoin Cash (CCC:BCH-USD) for payments by the end of the year.
Elon Musk liked Aron’s tweet about increased utility. That brought increased attention as well. But nothing is yet built, and by the time it is there’s a good chance very few will care.
Musk’s Take on Dogecoin
CEO Adam Aron was clearly looking to drum up more press and demand after Musk liked Aron’s initial tweet.
He responded by stating “I never thought I would see this day. @ElonMusk liked my Dogecoin Twitter Poll tweet. If you happen to see this tweet too Mr. Musk, congratulations on Tesla and SpaceX. I have strived to be an innovator my entire career, but you sir are the epitome of innovation above all others.”
But the truth is that Elon Musk was less than complementary about the move. He stated that he believes Dogecoin must drop its fees for it to really gain any traction as a means for retail purchases.
Why Do That?
The sudden price spike is on the assumption HODLers even want to use their Dogecoin for purchases like movie tickets. My guess is they probably don’t.
Let’s do a little thought exercise here regarding Dogecoin. Imagine you purchased DOGE at a great price and it’s seeing strong appreciation. Perhaps you’re making 4X on initial investment or you’re making 100X initial investment.
It doesn’t really matter, the point is that as a holder of DOGE you’re interested in it appreciating in price rather than using it to buy a movie ticket. You wouldn’t want to spend your DOGE and see prices spike further. It’s counter-intuitive.
That’s why all of this looks like a PR move on the part of AMC’s CEO rather than news of consequence for DOGE investors.
It seems like little has changed for Dogecoin and it still has tons of work ahead of it before it becomes worthy of investing in.
On the date of publication, Alex Sirois 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.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
