Theory: If DogeCoin Moons; it is Likely a Sign of Temporary Irrational Exuberance in the Market
Here is an informal speculative theory, “Dogecoin acts as a crypto correction indicator; historically, when Dogecoin is very doing well, an altcoin correction is imminent. Thus, the next time Dogecoin does very well, be wary of a correction.”
Update Sept 2018: A few sizable Doge rallies have coincided with the end of major crypto market bull cycles, the Feb 2014 rally and Jan 2018 rally are two clear examples of this. However, in between Doge has sometimes acted as an indicator of bearish trends turning bullish. For example, the Doge rallies that started in Oct of 2015 March of 2017 clearly were foreshadowing good things to come. So, in other words, if you see Doge rally after a long bear market, it could be a bullish sign… but historically, if you see Doge rally under any other conditions, watch out. The rest of the page will be about Doge as a Bearish indicator, but do use common sense and DYOR.
Doge as a Bearish Indicator
The above probably sounds like a slight dig on dogecoin, but it really isn’t.
Dogecoin’s normal cycles and normal price increases and decreases are not what we are looking at here. If you do well with Doge, more power to you, it has the volume to justify trading or investing in it. There aren’t many joke coins out there, but there are many worse coins and worse investments than Dogecoin.
Plus, I love doges, I love memes, I love crypto, and I don’t consider doge the coin to be “just a joke” (despite its joke roots). So it’s not that.
This is just an acknowledgment of a historic pattern.
Dogecoin has notably “mooned” (rapidly increased in price) a few times since 2013. Not every moon event directly correlates with a crypto correction, but three notable crypto corrections notably have correlated with rapid and noticeable increases in the price of Dodgecoin.
One notable time was right before the 2013 – 2014 crash/correction, one was right before the altcoin correction of may – June 2017, and one was right before the altcoin correction of January 2018.
So what is this telling us? It is telling us a few things, let me explain my logic and its implications:
- On one hand Dogecoin is a fine coin. It’s like Bitcoin with some tweaks, a large supply, and faster speeds. However, Dogecoin is also a joke coin, based on a meme, that is mostly an abandoned project (no Github updates in three years and its creator notes this and is generally a crypto doubter and Dogecoin doubter). Essentially, and politely as possible, Dogecoin should not be anyone’s top pick for a crypto investment. There are better coins to trade and/or investment in.
- When people start buying Dogecoin at a rapid pace (at the sort of pace that drives the price up quickly), it tells us that people are speculating on crypto so hard that they will buy a joke coin, with almost no support… that just went up 100%+ in a short period… thinking they will make bank. This is irrational, this is exuberant, this is a sign of irrational exuberance.
- Further, when people start buying Dogecoin it tells us that people have stopped seeing returns on better cryptos and are looking to “pump” something that still has room to move. Doge hasn’t moved, because Doge isn’t a top tier coin. Yet, people know it, so maybe it can move (it always does when the market is filled with buyers who just made great returns).
- Thus, if we find ourselves in a market that can move Doge, and we find people moving into Dogecoin, we find ourselves in a market full of red flags. After-all, we have a market full of speculators who just struck gold and are looking for a night out on the town or one more roll of the dice after finding gold. That is when the gold rush turns to regret.
- Crypto, especially the alt market, is a bubble and bust economy (another speculative theory of mine is that crypto is a bubble… but it isn’t a single bubble, it is a bunch of bubbles layered on-top of each other and/or in quick succession with a general upward trajectory over the course of years; a bubble and bust economy, like the regular markets but at a quick and more volatile pace). Thus, as much as we want to look for bubbles, we also want to keep an eye out for busts.
- Crypto bubbles high, and then it busts and loses up to 75% of its value, but then it bubbles high again (sometimes with months of cool off time in between). Crypto preforms this cycle in general, and Dodgecoin does this too. But where crypto’s cycle is hard to predict, Dogecoin is a thing that happens within the larger cycle, and thus if it is an indicator, then it tells us the most important bit of data possible in the crypto space (not when to buy… but when to get the heck out while the market cools off; you already know when to buy… you buy the dips and at support levels, that part is simple).
What I’m saying is that “the Dogecoin crypto indicator” (not ™) is a sign that we have entered a period of irrational exuberance. If we see this we can look for other indicators. Did a bunch of shhh coins just moon? Did Bitcoin, Ether, Ripple, and other top coins just do well and now they have stopped moving? If the answer is yes, it may be time to stop speculating and lock in profits (not to sell long positions, but to close short positions and set stops).
In general, a historic pattern goes like this: Bitcoin and Altcoins just corrected (buy), -> Bitcoin does well (buy alts with Bitcoin), -> Ripple does well (lock in profits to BTC), Ether does well (lock in profits to BTC), Dogecoin and shh coins do well (get out into fiat), ->Bitcoin and Altcoins just corrected (buy).
I’m not saying that will magically work every time, the market changes. All I’m saying is that Dogecoin doing well has historically been a red flag. So if you see a “Dogemoon” (also not ™), and the media starts posting pictures of Doge and lambos, and if everyone is a genius and is making money buying coins no one would touch in a bear market. Set stops.
Crypto will continue, crypto will come back, and Dogecoin will reach new highs (probably, probably, and probably)… but, that doesn’t mean we want to sit through every correction with short positions (long positions… what can you do?)
NOTE: Obviously I own a small amount of Dogecoin. Because it is very investment. However, I do believe the theory above holds weight and will be worth noting in the upcoming months and years. Also, if someone could update the Dogecoin Github, that would be great.
TIP: Since Dogecoin goes in cycles like crypto, there is some odd wisdom in buy Doge when it is very low and holding it until the next Dogemoon. Much profits!