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Dogecoin Goes From High Conviction to High Hopes

When Dogecoin (DOGE-USD) was trading near highs of 73 cents, investors were buying with some conviction for a one dollar price target. With Dogecoin trading at 14 cents, investors are hoping for some catalyst that can pull-off another big ral…

When Dogecoin (DOGE-USD) was trading near highs of 73 cents, investors were buying with some conviction for a one dollar price target. With Dogecoin trading at 14 cents, investors are hoping for some catalyst that can pull-off another big rally. That’s the story of a typical meme coin. In many ways, this also holds true for Shiba Inu (SHIB-USD), which has dropped by 67% from all-time highs.

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Does this imply that the story is over for meme coins?

I don’t believe the other extreme as well. There are dozens of meme coins. Only a handful might survive few years down the line. Given the community support and wider adoption, it seems that the likes of Dogecoin and Shiba Inu will survive.

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Having said that, Dogecoin is not an ideal investment for an investor seeking multifold returns. A market capitalization of $19 billion is still high for a meme coin. However, the Elon Musk support factor might continue to attract investors and help in sustaining valuations around current levels. At best, Dogecoin will provide good trading opportunities.

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Competition Within the Meme Coin Universe

Let’s also talk about CateCoin (CATE-USD). A recent news suggests that early Dogecoin and Shiba Inu investors are shifting to CateCoin. The meme coin trend seems to have shifted from dogs to cats.

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The reason for this shift is clear. Dogecoin is not going to deliver multifold returns. Early investors in CateCoin, on the other hand, have seen returns of 2,900x. When we are talking about strong utility coins, there is unlikely to be a significant outflow of funds.

However, this is a big risk with meme coins. In the coming months, there might be another theme that creates euphoria and the scope for multifold returns. Whenever that happens, there will be investors moving away from the likes of Dogecoin or Shiba Inu. In particular, if these meme coins fail to deliver robust returns.

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CateCoin also offers holders staking with an APR of 15%. Additionally, holders earn 2% reflection on every transaction. Of course, I am not recommending CateCoin. The only point that I want to make is that for meme coins, there can be alternatives, which seem more attractive. It’s similar to a business that has low barriers to entry.

Some Good News for Dogecoin

In terms of good news for Dogecoin, Elon Musk tweeted in January 2022 that Dogecoin can be used to buy some Tesla (NASDAQ:TSLA) merchandise. The positive impact of the new on Dogecoin price was short lived considering broad market sentiments.

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It’s also worth noting that Dogecoin has 4.8 million holders. This makes a strong case for more companies using Dogecoin as a payment method. Dogecoin also has an edge over Shiba Inu when it comes to having a bigger holder community. Elon Musk opined that the transaction volume of Bitcoin (BTC-USD) is low and the cost per transaction is high. This factor makes Dogecoin a better digital currency than Bitcoin.

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Concluding Views on Dogecoin

With multiple rate hikes likely in 2022, there will be relative tightening of liquidity. The year is unlikely to be easy for coins or tokens with limited utility. As interest rates increase, speculative money will vanish in thin air. The good news is that the cryptocurrency world is not just about speculation. Strong use cases have emerged with real-life application.

While Dogecoin will survive and provide investors with attractive trading opportunities, I don’t see the coin revisiting all-time highs. In particular, with Dogecoin being inflationary in nature. A market capitalization of $90 to $100 billion seems unlikely for a meme coin.

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In conclusion, the broad markets have been jittery for cryptocurrencies. Dogecoin has corrected to levels of 14 cents. When markets recover, I would not be surprised if Dogecoin delivers 30% to 50% returns from current levels. For now, the meme coin is a good trading bet.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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