Dogecoin is a bet that currently makes no sense
It’s probably just an example of Elon being Elon. Nevertheless, the CEO never shy of You’re here (NASDAQ:TSLA) tweeted that he was going to put a “literal” Dogecoin (CCC:DOGE-USD) on “the literal moon”.
Earth’s only true natural satellite, of course, refers to the extreme enthusiasm some people have for cryptocurrencies and other preferred stocks or assets. But is this bullish sentiment getting a little out of control?
From one angle, I can understand why a lot of people are excited about Dogecoin. While Elon Musk was probably playing an April Fool’s Day joke on the world, the man has been a staunch supporter of cryptocurrencies. Although I don’t always agree with the CEO of Tesla, I have to say that he changed my life. So, I am grateful to him, even though I am currently running TSLA.
Awful, I know. But being an ungrateful person in the market has taught me a valuable lesson: succeeding in the investment market is a lot like dating. When you want someone or something so badly, it usually doesn’t turn out well. You give off bad vibes when you get desperate and it becomes “scary AF,” as kids like to say.
Indeed, when you let go and “don’t give AF”, that’s where good things start to happen. The person you’re trying to attract suddenly gives you the time of day. Or the door that closes leads to the one that opens.
Great stuff, but you might be wondering – what does this have to do with Dogecoin?
In my opinion, everything. This is because Dogecoin has jumped more sharks than The walking dead. I mean, the creators behind the DOGE token publicly acknowledged that it was designed as a joke. Still, the richest man in the world and perhaps the tallest man in the world (namely Snoop Dogg) has pushed his support for cryptocurrency. It smacks of desperation and one-sided group thinking.
Come on. At some point, this ship will implode.
Be smart and make some profit from Dogecoin
I’m about to spend more time analyzing Dogecoin than this asset really deserves. But I’m going to do it because I think it’s important for investors to start thinking with their heads, not their emotions – or worse yet, listening to social media influencers.
Mainly, Dogecoin will likely continue to exceed expectations and stretch disbelief as long as Bitcoin (CCC:BTC-USD) trades in the stratosphere. Therefore, DOGE traders should look to BTC prices to determine the viability of their speculative bets.
Obviously, the question becomes, where will Bitcoin go next? At the time of writing this article, BTC is on the verge of reaching $ 60,000. However, recent exchanges have been extremely volatile. I find this surprising – $ 60,000 is just there!
So I got curious: what are BTC traders observing that I don’t know? It turns out that you can learn a lot about Bitcoin sentiment by analyzing its price versus its. bid-ask spread.
For a quick overview, day traders often use the spread to make quick profits or scalps. If the spread is wider than usual, this implies higher than normal demand and, conversely, lower than normal supply. Here, more people want to buy the target asset than sell, so the broker charges buyers a higher price. Contrary traders use this momentum as a bearish indicator.
If the spread is tighter than usual, demand is lower and supply is higher. Here there are more sellers than buyers and the brokers entice buyers with lower prices. Day traders interpret this as a bullish indicator.
Since the third quarter of 2018 on Coinbase platform, the average spread for Bitcoin is 0.7%. But at the time of writing, the spread has fallen to 0.21%, while the price of BTC is near its all-time highs.
In my opinion, it doesn’t make sense because if the demand is this high, the spread should be wider because brokers can earn more profit. This seems to suggest that Bitcoin is stretched and needs to be corrected. If so, buying Dogecoin now might not be the best decision.
Other warning signs to consider
If you look at the Bitcoin price and volume chart, you will notice that throughout this year the value of BTC has increased while its volume has generally declined. It is a contradiction which generally goes downwards.
Also, I don’t really buy the inflation argument. First, precious metals have not performed well. Second, metrics like the speed of money and the personal savings rate indicate that fiscal stimulus is failing because people aren’t spending money – they’re actually saving it.
Finally, the ADP Jobs Report for March 2021 shows that large firms were the smallest contributors to labor market gains, but benefited the most from federal relief loans and funds, as well as remote working and automation. As a result, the productivity parameters of large firms increased, while the distribution of wages (i.e. wage growth from the perspective of employees) remained unchanged.
It is a deflationary dynamic, not an inflationary one.
Therefore, whether you look at Dogecoin’s technical dynamics (via Bitcoin’s bid-ask spread) or broader fundamentals, everything seems to imply that a correction is near. Of course, the decision is yours – just be careful if you want to get started.
As of the date of publication, Josh Enomoto was long in DOGE and BTC (to be clear, the author has an extremely small position in DOGE and is currently digesting BTC related news) and is TSLA short.
Former senior business analyst for Sony Electronics, Josh Enomoto has helped negotiate major contracts with Fortune Global 500 companies. Over the past several years, he has provided unique and critical information for the investment markets, as well as for various other sectors, including law, construction management and health.