Theoretically speaking, Dogecoin (CCC:DOGE-USD) still features a bullish profile (at the time of writing).
Since the July bottom of this year, the meme coin has been charting a series of higher lows, signaling the existence of technical support. But whether DOGE can keep this trend alive is another matter.
As you know, after much hype about Bitcoin (CCC:BTC-USD) hitting six figures by the end of this year, suddenly, the prognostication doesn’t seem so hot. What absolutely could not happen is BTC spending excess time below the $60,000 level. After flirting with danger, BTC did drive up — only to apparently prove that this was a head fake.
As I stand here now, BTC is in liquidation mode, having dropped below the $57,000 level. Not surprisingly, the fallout has also affected Dogecoin and other alternative cryptocurrencies.
The hope that DOGE or its ilk could craft a market trajectory independent of Bitcoin’s gyrations has vanished, at least for now. But what caused this mess in the first place?
While myriad factors are involved, one of the biggest is the fear of regulation. According to many experts, central banks are gearing up for a more standardized ecosystem regarding digital assets.
Back at home, a group of bipartisan lawmakers introduced a bill that would provide more lucidity regarding the definition of a broker.
Now this is speculation on my part, but cryptos (and particularly ultra-speculative ones like Dogecoin) have thrived on regulatory ambiguity.
Therefore, it’s possible that while this particular bill might not be a gamechanger for the federal government, it’s also emblematic of greater sentiment for standardization.
Of course, the fear is that such standardization could stymie innovation. Besides, the crypto complex has been built at least partially on the idea of distancing oneself from “the system.”
Mt. Gox and the Dogecoin Headwind
Presently, I’m conducting some independent research on the pricing dynamics of cryptos to help readers sift through the noise associated with this sector. For now, I’ll tell you this much, Dogecoin and Bitcoin share a 99% correlation between 2017 through the year so far on an annual average price basis.
For historical data analysis, you should consult Investing.com’s crypto section, which features the majors and even the meme coins like Dogecoin.
Anyways, I mention the high correlation because whatever happens to Bitcoin seems to eventually filter down to DOGE. Thus, anything of significance to BTC should warrant consideration if you’re a fan of the canine-inspired asset.
It turns out, there’s a big one looming over the horizon. According to a recent Reuters report, BTC investors have been spooked by the prospect that creditors of the collapsed Mt. Gox exchange could liquidate their court-mandated payments.
No kidding? Where have I heard this argument before? Oh yeah, I mentioned it more than a month ago.
From the data, the insolvency case could spark a new wave of Bitcoin millionaires. “On tap are 200,000 BTC that have been recovered, with 36,800 creditors owning payout claims.”
I further gave this clear warning: “Now, let’s consider the psychology here. After almost a decade of financial purgatory, many of these creditors will probably want to cash out as soon as possible. You know, get something while it’s there. I know I would.”
When I wrote the above words, Bitcoin was trading hands at over $61,000. Peaking at the live charts again, I see that BTC has crawled up above $56,100. Frankly, if the folks who were anxious to receive their BTC were already on high alert, the recent volatility will likely only bolster a liquidation mentality.
DOGE May Still Be a Better Bet
Despite the immediate concerns about Bitcoin’s price trajectory and its impact on the highly-correlated Dogecoin, the latter could still be a better bet under specific contexts. As I’ve mentioned in prior articles, as BTC rises in price, its reward potential declines while its risk increases.
With Dogecoin, you can put in a relatively small amount of money yet potentially accrue massive profits, in part to the law of small numbers. And the recent fallout in cryptos confirms the point.
Nominally, those who bought one whole BTC at its all-time high (around $69,000) in the hopes that it would jump to $100,000 have instead lost about $13,000. That is a $13,000 loss for the hopes of profiting $31,000.
With DOGE, you could have put in say $10,000 and hoped for a 4X return — a not unreasonable expectation for the meme coin. And if it didn’t go your way, you would be out less money.
Further, there’s no telling what will happen to BTC. Maybe it moves higher or maybe it keeps falling. Thus, its risk-reward profile still doesn’t make much sense. It’s not great for Dogecoin either but again, you don’t have to put yourself in as much financial danger to gain massive profits.
On the date of publication, Josh Enomoto held a LONG position in DOGE and BTC. 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.