Hey 5-Star Trader,
Recently, Dogecoin has been making headlines as its value continues to spike, leaving Wall Street in awe. Are we on the cusp of a trading revolution?
Is history repeating itself?
At the beginning of this year, we saw a major market shift in favor of Gamestop (GME). Previously, it was a dying stock that the hedges were betting against. All of a sudden there was a huge influx of retail buyers, brought together by the power of the internet, who rallied together and brought it back to life. Hedges lost millions, and it seems like a new-age way of trading was born. Now, it appears it’s Dogecoin’s turn for the spotlight.
Rallying against Wall Street…
Trading Game Stop and Dogecoin is the retail trader’s favorite method of sticking it to the man — the man being the entire financial institution known as Wall Street. The average Joe’s have banded together and rallied in their distaste toward those they believe represent Wall Street and the type of investments that historically have made money for Wall Street types.
Retail traders have been determined to demonstrate that even without formal education and credentials, they can not just join Wall Street at their own game, but in fact, beat them and obtain percentage returns completely out of the ordinary. They’ve done it by picking vehicles (Game Stop and Dogecoin) that educated financial analysts laugh at. This makes it even more enjoyable and better forum fodder than if they made money on the likes of a typical Facebook, Amazon, Apple, Netflix, and Alphabet (formerly known as Google) (FAANG) stock like Microsoft.
Dogecoin is no joke…
At its inception, Dogecoin was merely invented as a joke. But, because the jokes make excellent memes and get attention from the likes of Elon Musk (who is a hero to many) the rate at which people want to join in this Wall Street bashing fun has accelerated. This speeds up how often the average Joe posts screenshots of the thousands he’s made in Dogecoin with zero experience or credentials in the financial markets. This only leads to, of course, more buying. The bigger the joke, the more entertaining the money flow and the higher the prices will rise.
However, despite their similarities in market action, there are differences between Gamestop and Dogecoin. Gamestop at its core is a dying retail chain. The reason why this trade worked so well was because of the high short interest and the short squeeze aspect. By making money on a Wall Street identified loser, not only was that entertaining, but watching them get squeezed out to the upside and lose billions was even more entertaining and a win for the average Joe.
Dogecoin has caught on largely, I believe, due to the social powers of Elon Musk. There is no short squeeze here, but because it’s such a low-priced purchase (like GME) it made it very accessible to the average retail trader.
In the aftermath of the huge GME move, many traders watched the Reddit user “Roaring Kitty,” walk out of a congressional hearing with zero consequences or issues on his part for the massive craze he started. Now with the stamp of approval from Congress, retail traders wanted their next target and Dogecoin became the mark.
Dogecoin’s true value…
As cryptocurrency itself is becoming so mainstream, and, as the government continues devaluing the dollar, it doesn’t take a financial degree to figure out that finding a place to put money in which it can’t be taxed or devalued by the government is a good idea. This is huge and makes the Dogecoin rally that much different than GME.
With the Biden administration and government spending, there will be more money printing and the devaluation of the U.S. dollar will continue. Gold and silver once hedged against inflation, but why buy gold when you can buy a coin that went up 11,000%? Retail traders aren’t interested in giving their money to a money manager to only make 16% on average then pay 6% in fees, especially after Roaring Kitty led the way to the promised land.
So, I’m guessing you’re wondering if I’m buying Dogecoin at this point. Of course, I’m buying it. I’m not buying it because I think it has value, I’m buying it because the masses are buying it, and are obsessing over it which will inevitably make price go higher. It doesn’t matter if it was a joke cryptocurrency created so that in reality it ”should” have no value. Anything that trades already has a value given to it by the market. Sure, it will be volatile, but, today’s new generation of investors isn’t interested in buying value stocks with dividends that take 20-30 years to make them money. They’re going to take their chances, find a few “you only live once” (YOLO) trades, and share some memes with their friends. The most ironic part is that those of us in the financial world can’t discount the retail traders because, even though none of it makes sense, they are making money.