2021-06-10 08:00:00

Dogecoin: Don’t Invest When Other Better Altcoins Are Out There

Considering it’s been built on hype rather than substance, it’s surprising Dogecoin (CCC:DOGE-USD) has held up in the aftermath of last month’s crypto crash. Or is it? Meme-fueled investors, who pivoted from stocks to crypto in the spring, have made a return to their old “meme stock” stomping grounds.

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But there’s still a bit of the energy still at play here with this crypto, once dismissed as a joke. Not only that, its trading debut on Coinbase (NASDAQ:COIN) has likely also helped to provide it support.

So does that mean Dogecoin’s heading back “to the moon?” Not so fast. In the near-term, there may be enough at play to prevent it from falling below 30 cents. But the energy still in play here won’t last forever.

At this point, this coin still seems to be a passing fad. It might get one more rally before it’s all said and done. But once it fails to take off like it did back in April and May, many of those holding it today will become impatient and finally throw in the towel.

The result? Perhaps not a return back to prices under 1 cent, which is what it traded for at the start of 2021. But certainly a double-digit decline from today’s levels (around 33 cents). Instead of gambling on this coin, opt instead to invest in altcoins offering up more long-term potential.

Dogecoin and Its Post-Crash Resiliency

After last month’s crypto market meltdown, names across the board have struggled to bounce back. Bitcoin (CCC:BTC-USD) continues to slide. Ethereum (CCC:ETH-USD) has seen similar middling performance despite the pivot in interest to it from BTC.

The so-called “Ethereum killer” altcoins like Cardano (CCC:ADA-USD), Polygon (CCC:MATIC-USD) and Solana (CCC:SOL-USD) have fared much better in recent weeks, but so has Dogecoin, despite not even coming close to having their level of functionality.

What’s behind this unexpected resiliency? Some of it you can chalk up to the continued power of the meme energy behind it, even as speculators active online move back into “meme stocks” like AMC Entertainment (NYSE:AMC), Blackberry (NYSE:BB) and GameStop (NYSE:GME).

And of course its Coinbase trading debut on June 3 has helped out as well. Yet after seeing a small pop back to as high as 44 cents ahead of this development, it’s since slid back to where it was before this short-lived bounce back. Putting it simply, there’s enough enthusiasm to keep prices steady. But while I wouldn’t count it out, it’s far from guaranteed we’ll see another parabolic move higher.

Is There Room for One More Dogecoin Rally?

Investors looking to “buy the dip” with Dogecoin aren’t doing so to capture gradual gains. Chances are, they’re buying in today in hopes of locking down a position ahead of another “to the moon” rally. Right now, it seems like that’s wishful thinking. But there are two ways another round of memetic frenzy could play out here.

For one, as I wrote back on May 25, Elon Musk’s influence on DOGE-USD prices could again work in this coin’s favor. Right now, his latest involvement (his plans to literally put it on the moon) may be more of a publicity stunt than anything else. But if he winds up actually putting real effort behind its further development, such as facilitating upgrades, this could spark a rebound back towards its past highs.

Second, Musk or no Musk, the meme trading community could unexpectedly dive back into it in a big way. If the latest round of widespread short-squeezing that’s broken out in recent days again runs out of steam, a lot of this retail money could flow back into this prior “flavor of the month.”

But while there’s potential for investor irrationality to again benefit those already holding Dogecoin, it’s not inevitable. With its bull case still built almost entirely around “greater fool theory,” rather than its fundamentals, going long this coin today remains little more than a gamble.

Focus on Cryptos With Long-Term Potential Instead

For now, DOGE-USD could hold steady, or, if the stars align, see one last short-lived rally. But while the irrationality has held up, this isn’t going to remain the case in perpetuity. As investors realize that no new pool of investors will emerge to buy them out at a higher price, confidence will continue to fade.

Once those still holding it now head for the exits, expect a major decline in price. Again, perhaps not back towards its 52-week lows, but likely to prices well below what it changes hands for today.

So, with this meme coin more likely to fall than bounce back to its prior highs, what’s the best move? Other altcoins come with their share of high risk. But offering up more substance and long-term potential, focus on them instead of Dogecoin.

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On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. He did not have (either directly or indirectly) any positions in the other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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