DOGE & the sunk cost fallacy
There appears to be a lot of attention on Dogecoin these days. People are asking whether it's a good time to get in... or a good time to sell...
In order to appreciate where DOGE is right now and where it may be going we need to understand how we got here:
At the beginning of the year, DOGE got a nice boost along with the rest of the market. It was as if buyers were just waiting for the new year to add to their positions.
Buying peaked the first couple weeks of 2021 and began to cool across the board before picking up again.
On January 28, social media began blasting DOGE as the next big crypto investment and Elon Musk jumped on the bandwagon to create a one day lift of around 800%.
In the subsequent days, people scrambled to buy DOGE, which is not particularly easy. It's only traded on a few exchanges.
Nonetheless, money continued to fill in and snap up available coins as accounts were created and funds transferred.
On February 4, Musk tweets again and drives the price past $0.05 creating more attention and more buyers.
On February 8th the momentum stopped.
This is a typical pump-and-dump scheme. Coin holders band together, perhaps not even in an organized way, to generate attention, which drives the price up. As more buyers jump in, the long-term holders (who know how cyclical the asset is) decide to take profits. When there are no more buyers to support the sales, the price begins to decline. I put the arrows in to demonstrate that anyone buying after February 4th was taking a risky bet that DOGE would continue to rise as it did after the massive pumps. Anyone selling after the February 8th peak was decreasing their risk by taking some or all of their initial investment off the table. In fact, anyone that was a holder before January 28th would have been wise to decrease their risk at any point after the news was out that DOGE was hot.
If you were one of the unfortunate people who got in after February 4th, then you are looking at a loss and likely hoping that it will get another boost. Meanwhile, Bitcoin and the rest of the market soldiers upward and onward. This is the sunk cost fallacy: "I'm already at a loss... I need to get back to zero before I can take my money out." You may be able to get your money back more quickly by riding one of the waves that continues to rise. In fact, many investors are already likely swapping out of DOGE, which would explain DOGE's recent fall.
It's impossible to say whether another pump is coming. Through all the tweets, I couldn't tell if Elon was being silly or serious. Is he willing to put his neck on the line and convert some of those $1.5 billion worth of Bitcoin (possibly worth 22B by now) into DOGE to inject it with a bit more rocket fuel? At the risk of losing his BTC bet? Is he going to make another tweet and potentially lure more speculative investors to gamble on DOGE? Was this all just a meme for his amusement? I'm sure there are plenty of people that are angry that they got sucked in at the top and wondering if they've been duped or why they have been abandoned. Elon certainly has the money to turn DOGE into a powerhouse crypto asset, but he's currently running a high-profile EV company, solar company, energy storage company and rocket company. These companies all contribute to his actual stock/ownership wealth. Betting on DOGE is a big gamble that doesn't really help society the way his other ventures do. Would he actually step into the crypto space and help build DOGE into a serious competitor for something like BAT, which is already doing what DOGE intends to do? Frankly, I think his time, energy and money would be better spent on projects that are already humming along with a strong user base and business case.
So what to do now? I don't own DOGE because I don't see the utility in it. Elon himself said that it would be ironic if DOGE were to be successful. There are plenty of crypto options that will be seriously successful. I'm not sure how irony makes a case for success. That said, it's certainly possible that another pump is on the horizon. However, while DOGE holders are waiting for the next pump, the price trickles downward while BTC and the rest of the market tick upwards. I make the case that you'd be better off to swap those DOGE coins for ETH. I expect BTC will continue to rise, however, it has already received a lot of attention and has already made big moves in the past months. ETH has also made big moves and broken through it's ATH but altcoins have yet to hit their stride and ETH is the safest bet in the "everything-else" crypto market. ETH2.0 with revenues from staking is poised to take the market by storm. If the steady gains of ETH and BTC are too boring for you, then look at all the other top 10 or 20 altcoin options. These are solid options with solid prospects. Yes, it would be very disappointing if you sell out of DOGE right before it gets another pump. However, the risk is that you ride it back to it's support level, which currently sits at about 1/10 of where it is now.
Take a look at the DOGEBTC pair if you want to get an idea of they cyclical nature of DOGE in relation to BTC (see my previous post below from when all the hype was flying). You'll see that it doesn't spend very much time at it's peak and we are well past that point now. But who knows, if you hodl long enough, it might just get you to where you want it to be. With all that said, I would be foolish to short this unpredictable coin so don't blame me if you make the wrong choice... Best wishes for your wealth and happiness!
In order to appreciate where DOGE is right now and where it may be going we need to understand how we got here:
At the beginning of the year, DOGE got a nice boost along with the rest of the market. It was as if buyers were just waiting for the new year to add to their positions.
Buying peaked the first couple weeks of 2021 and began to cool across the board before picking up again.
On January 28, social media began blasting DOGE as the next big crypto investment and Elon Musk jumped on the bandwagon to create a one day lift of around 800%.
In the subsequent days, people scrambled to buy DOGE, which is not particularly easy. It's only traded on a few exchanges.
Nonetheless, money continued to fill in and snap up available coins as accounts were created and funds transferred.
On February 4, Musk tweets again and drives the price past $0.05 creating more attention and more buyers.
On February 8th the momentum stopped.
This is a typical pump-and-dump scheme. Coin holders band together, perhaps not even in an organized way, to generate attention, which drives the price up. As more buyers jump in, the long-term holders (who know how cyclical the asset is) decide to take profits. When there are no more buyers to support the sales, the price begins to decline. I put the arrows in to demonstrate that anyone buying after February 4th was taking a risky bet that DOGE would continue to rise as it did after the massive pumps. Anyone selling after the February 8th peak was decreasing their risk by taking some or all of their initial investment off the table. In fact, anyone that was a holder before January 28th would have been wise to decrease their risk at any point after the news was out that DOGE was hot.
If you were one of the unfortunate people who got in after February 4th, then you are looking at a loss and likely hoping that it will get another boost. Meanwhile, Bitcoin and the rest of the market soldiers upward and onward. This is the sunk cost fallacy: "I'm already at a loss... I need to get back to zero before I can take my money out." You may be able to get your money back more quickly by riding one of the waves that continues to rise. In fact, many investors are already likely swapping out of DOGE, which would explain DOGE's recent fall.
It's impossible to say whether another pump is coming. Through all the tweets, I couldn't tell if Elon was being silly or serious. Is he willing to put his neck on the line and convert some of those $1.5 billion worth of Bitcoin (possibly worth 22B by now) into DOGE to inject it with a bit more rocket fuel? At the risk of losing his BTC bet? Is he going to make another tweet and potentially lure more speculative investors to gamble on DOGE? Was this all just a meme for his amusement? I'm sure there are plenty of people that are angry that they got sucked in at the top and wondering if they've been duped or why they have been abandoned. Elon certainly has the money to turn DOGE into a powerhouse crypto asset, but he's currently running a high-profile EV company, solar company, energy storage company and rocket company. These companies all contribute to his actual stock/ownership wealth. Betting on DOGE is a big gamble that doesn't really help society the way his other ventures do. Would he actually step into the crypto space and help build DOGE into a serious competitor for something like BAT, which is already doing what DOGE intends to do? Frankly, I think his time, energy and money would be better spent on projects that are already humming along with a strong user base and business case.
So what to do now? I don't own DOGE because I don't see the utility in it. Elon himself said that it would be ironic if DOGE were to be successful. There are plenty of crypto options that will be seriously successful. I'm not sure how irony makes a case for success. That said, it's certainly possible that another pump is on the horizon. However, while DOGE holders are waiting for the next pump, the price trickles downward while BTC and the rest of the market tick upwards. I make the case that you'd be better off to swap those DOGE coins for ETH. I expect BTC will continue to rise, however, it has already received a lot of attention and has already made big moves in the past months. ETH has also made big moves and broken through it's ATH but altcoins have yet to hit their stride and ETH is the safest bet in the "everything-else" crypto market. ETH2.0 with revenues from staking is poised to take the market by storm. If the steady gains of ETH and BTC are too boring for you, then look at all the other top 10 or 20 altcoin options. These are solid options with solid prospects. Yes, it would be very disappointing if you sell out of DOGE right before it gets another pump. However, the risk is that you ride it back to it's support level, which currently sits at about 1/10 of where it is now.
Take a look at the DOGEBTC pair if you want to get an idea of they cyclical nature of DOGE in relation to BTC (see my previous post below from when all the hype was flying). You'll see that it doesn't spend very much time at it's peak and we are well past that point now. But who knows, if you hodl long enough, it might just get you to where you want it to be. With all that said, I would be foolish to short this unpredictable coin so don't blame me if you make the wrong choice... Best wishes for your wealth and happiness!
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