2021-02-12 08:00:00

Dogecoin Extends Tesla-Backed Rally, But DOGE Is Highly Speculative

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Dogecoin (CCC:DOGE-USD), which joined the ranks of cryptocurrencies in 2013, has been making headlines in 2021. On Jan. 27, DOGE had a price of $0.0075. But just two days later it hit $0.0780, up 10 times in that short time. Now, it is around $0.0673.

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Trading and investing in cryptocurrencies has been on the rise for many years now, with Bitcoin (CCC:BTC-USD) as the main name most people know. BTC is hovering at all-time highs of nearly $48,200. But the sudden surge in Dogecoin has meant increased attention for DOGE, too. Therefore, today’s article discusses what Dogecoin is and if you should put the cryptocurrency on your radar. Let’s take a look. 

Meme Cryptocurrencies

Dogecoin is a cryptocurrency invented by software engineers Billy Markus and Jackson Palmer, who decided to create a payment system that is instant, fun, and free from traditional banking fees. Dogecoin features the face of the Shiba Inu dog from the “Doge” meme as its logo and namesake. We could, thus, refer to it as a “meme” cryptocurrency. There are other cryptocurrencies based off popular memes or people.

Initially, Dogecoin was mainly used for “thanking” others on the Internet for “positive acts,” such as an idea or a web-related activity. Since 2013, interest has been slowly building up in DOGE. Unlike Bitcoin, Dogecoin does not limit the number of coins that can be produced.

Recent research by Usman W. Chohan of UNSW Business School, Australia highlights:

The frenzied public interest in cryptocurrencies has meant that, as second-order capital rushes towards the Bitcoin trade, potential investors are also drawn toward alternative currencies that may serve specific purposes; but one such cryptoasset, Dogecoin, is not so much an alternative numismatic instrument as it is a leisured exploration of community-building around a cryptoasset.

In recent weeks, as investors (both institutional and retail) took their profits from the crazy rallies in Gamestop (NYSE:GME) and AMC Entertainment (NYSE:AMC), the Internet (predominantly Reddit users) looked to find the next trend, and this meme currency, i.e., Dogecoin, mainly caught their attention.

Along with retail interest came celebrity support, namely from Elon Musk, the successful entrepreneur and the world’s wealthiest person. Bloomberg Billionaires Index notes Mr. Musk’s estimated net worth is over $200 billion, surpassing Jeff Bezos of Amazon (NASDAQ:AMZN). Therefore, when Mr. Musk talks, the Street listens. 

Elon Musk Provides Tailwinds

Tesla (NASDAQ:TSLA) CEO Elon Musk has not been shy to use Twitter‘s (NYSE:TWTR) platform to publicize his positive views on Bitcoin and Dogecoin. He has around 25 million followers on Twitter.

Then, last week, an SEC filing showed that Tesla purchased $1.5 billion in Bitcoin in January. Now some on Wall Street wonder if Mr. Musk could come under an investigation by the SEC. Yet what is certain is that the CEO of Tesla has helped push the price of cryptocurrencies to new highs.

Musk has a reputation for moving the stock market using tweets, once tweeting that Tesla’s stock price was too high, causing a crash of the price. He also tweeted that Tesla would go private at $420 a share, referring to a weed joke that later led to him being sued by the SEC.

In recent weeks, Musk has tweeted on Dogecoin a few times, including one tweet stating, “Dogecoin is the people’s crypto.” He has also tweeted many pictures relating to the currency. Finally, on Feb. 11, he tweeted that he bought some Dogecoin for his toddler son, leading to more headlines.

Now, the Street wonders if Dogecoin can reach $1, a level that seems to be plucked out of the air by retail investors. $1 seems an arbitrary value, not necessarily backed by anything tangible, other than investor sentiment. Also, there doesn’t seem to be any fundamental reason behind the price increase of Dogecoin.

The Bottom Line on Dogecoin

One of the most difficult elements is trying to ascertain what a fair value for DOGE is. From a fundamental point of view, buying Dogecoin at this level is hard to justify. Investors cannot really tell whether the current level reflects an undervaluation, or the complete opposite.

As we currently stand, many retail investors seem to disregard this fact when they look for the next trade that could bring in the riches. Meanwhile, they move away from the time-tested investing strategies of billionaires such as Warren Buffet, based heavily around fundamentals, dividends, and consistent revenue and profit growth.

What can happen next? It is not easy to predict whether DOGE will rally all the way to $1 as the Redditors and Musk hope. It could reach its potential of getting “to the moon.” But we could also see a similar situation as in the case of GME and AMC stocks, a momentum which died off nearly as quickly as it rose.

But if DOGE were to hold its price, then it could become a currency that even more people flock to as the trend of crypto continues to grow.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. 

The post Dogecoin Extends Tesla-Backed Rally, But DOGE Is Highly Speculative appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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