BlockTower contest entry — Dogecoin Investment Thesis

Jun 15, 2019 · 7 min read

BlockTower has recently announced an analyst contest, announcing that they will be giving out 3.5 BTC to top three investment theses they receive. They will also interview some of the contestants as they’re looking to expand their team.
There is only one issue with the contest — it’s limited to US citizens, due to regulation bullshit.
We’ve had quite enough of that lately, so I decided to have some fun with the contest instead.

Dogecoin Investment Thesis

Investment Thesis Summary

  • Target Length: ¼ of a page to 1 page
  • Suggested Content: Summary of why this is an attractive investment and the form the investment should take (e.g. entry and target exit, expected timeframe, where to buy or short-sell the asset, etc.)

Many cryptoasset proponents cite Lindy effect as one of the reasons why Bitcoin will survive the next decade. Lindy effect is simple — the longer something nonperishable survives (be it an idea, a technology, or a vice) the higher the chance it keeps on living.
The older the cryptoasset, the higher the chance it finds its niche and survives future market cycles.
Enter Dogecoin, a fundamentally robust cryptoasset, which will celebrate its fifth birthday on December 6, 2019.

Due to 1 minute block spacing, Dogecoin can absorb significantly more transactions than Bitcoin.
Due to fairly low satoshi prices, the markets are very liquid with buywalls and sellwalls present on most exchanges in significant amouns.
The network is secure thanks to merge-mining (more on that later) with Litecoin, meaning exchanges can accept Dogecoin with few confirmations.
Due to lack of prolific development and stable blockchain, the exchange wallets are almost never under maintenance.

This makes Dogecoin the perfect arbitrage vehicle, which can be seen from the stable amount of transactions present on the L1 blockchain level.

2. People

  • Target Length: 1 page to 2 pages
  • Suggested Content: Key stakeholders in the ecosystem (founders, project leaders, developers, influential miners or stakers, etc.)

Dogecoin is a purely community driven coin with history of staying power and the community rallying from time to time behind what they deem important issues.

It has begun in a different fashion to Bitcoin, however, it is similar in the sense that the original creator has faded out and no longer has influence on the development of the cryptoasset.

There is no single persona currently maintaining the project. The programming work is divided among several community developers. The effort is purely to remain up to date with basic Bitcoin developments, with three currently active Github branches. This is quite disappointing, yet it does not prohibit an investment into the coin, since its main utility remains in stable block spacing and speed of transactions.

Dogecoin miners are synonymous with Litecoin miners — Dogecoin is merge-mined with Litecoin using AuxPoW. It therefore almost completely inherits the security of Litecoin, which is currently the second strongest blockchain from a Proof of Work perspective.

Only the most foolish Litecoin miners don’t merge-mine Dogecoin, as there is no downside to doing so.

Dogecoin is well distributed into the hands of many holders, with over 70 000 active addresses at the time of writing.

Similarly, the official Twitter account has 136 000 followers and the official reddit has 135 000 members.

Since this section is shorter than it should be, have a picture of doge:

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3. Market Information

  • Target Length: ½ of a page to 2 pages
  • Suggested Content: Liquidity, largest holders, price action and technical analysis, lock-up schedule for early investors, current and projected circulating supply

As mentioned in the thesis summary, Dogecoin is chronically liquid thanks to its low satoshi valuation. There is very little worry that if you send Dogecoins to your exchange of choice, you will be unable to sell them.

16% of the circulating supply of Dogecoin has been transferred in the last 24 hours, with 1300 transactions per hour on average.

There are currently 119 894 035 122 Dogecoins in existence.

No Dogecoins are locked up, though many are likely lost. The circulating supply grows every block, at a rate that is gradually slowing down. The current inflation is ca. 4.5% per year. There is no maximum supply, with minimum inflation reached in 2030 at 3.5% p.a. . The transaction fees are negligible, however, due to no additional cost for mining Dogecoin on top of Litecoin, the block reward is large enough to motivate miners.

The Dogecoin price history and chart is a meme by this point — its cyclical nature is clear, with cycles of varying length — from 220 to 250 days bottom to bottom.
Dogecoin bottoms out in a rapid fashion, with no indication of classic chart patterns or horizontal support and resistance recognition. Same could be said when the market tops out.
There are only two patterns:

  • the bottoms occur reliably between 220–250 days. The next bottom is implied between 14th October 2019 and 25th November 2019.
  • the second pattern shown is the 1 2 3 4 stairway in regards to the strength and length of the uptrend. This implies, that the next trend should be a doozy, targeting at least 400% appreciation in the span of 40–80 days.
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4. Regulatory

  • Target Length: ¼ of a page to 1 page
  • Suggested Content: What, in your opinion, is the asset most likely to be classified as from a regulatory perspective (based on US law). Any concerns or restrictions for a US investor? Risk of regulatory action against the project or people associated with it?

Unlike the BlockTower competition, Dogecoin is under no risk of being the target of US regulation.
It has started as a Proof of Work coin in 2013, with zero premine, no ICO, no VC backing and no founders rewards.
The supply is well distributed and therefore should be “sufficiently decentralized” and what I’d call grandfathered in.
Unless Bitcoin itself becomes considered a security, there should be no regulatory risks to Dogecoin.
In which case everything is fucked anyways, so whatever.

5. Confirming and Disconfirming Evidence

  • Target Length: ¼ of a page to 1 page
  • Suggested Content: What should an investor be watching for to update their opinion? What could happen to encourage or discourage this investment?

This is a fixed length investment with a simple game plan — the investor should start purchasing Dogecoins on 14th October 2019, attempting to cost average the investment over the next thirty days (unless the expected uptrend starts quickly, in which case the accumulation of the intended position size is accelerated).
If Dogecoin does not start moving within the first half of December 2019 (around the 5th anniversary, or 6th December, to be precise), the investment can be considered void, as the market has moved on from the meme cycle.

This makes the investment a quick swing trade, with expected holding length of 10 to 60 days.

In the meantime, before the Dogecoin market becomes ripe for investment, the savvy investor should keep watching Dogecoin blockchain explorers to see, if something hasn’t changed in the utility of Dogecoin, eg. a sudden lack of transactions. This might be attributed to exchanges adopting the Bitcoin Liquid sidechain rapidly, or another blockchain taking over in the arbitrage game, making Dogecoin obsolete.

Current main competitors in quick arbitrage between exchanges are Tether, Ethereum and Litecoin.
Bitcoin is generally too slow for arbitrage, with transactions fees becoming more expensive over time.
Tether and Ethereum have been suffering from higher transaction fees, making Dogecoin a superior vehicle.
Litecoin is 2.5 times slower in sheer block speed, making Dogecoin superior, if the same amount of confirmations is required.

6. Downside Scenarios

  • Target Length: ¼ of a page to 1 page
  • Suggested Content: If this investment does badly, what are the most likely causes?

There are no downside scenarios to a Dogecoin investment. If its unprofitable, remember that 1 DOGE remains 1 DOGE.

This fact should make the investment good by default.

If you are one of the disgusting people, who don’t count their investments in Dogecoins, there might indeed be hurdles, like the coin not pumping against Bitcoin as expected. If that is the case, the humble author suggests exiting the trade around 15th December and promises to dedicate his life to unraveling the mystery behind Dogecoin not pumping on its 5th anniversary.

Indeed, the most likely cause for Dogecoin not pumping is the market maker reading this investment thesis and deciding to fuck me over and pump Dogecoin a month later.

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