What’s important in the process of trading Dogecoin and other crypto assets

Dan Russo, Potomac Fund Management CMT, joins Yahoo FInance’s Kristin Myers and Alexis Christoforous to discuss market reaction to earnings season and moves in the crypto market.

Video Transcript

KRISTIN MYERS: So let's do a deeper dive into the market action. We're joined now by Dan Russo, portfolio manager at Potomac Fund Management. Dan, I want to get to the broader market action in just a moment. But I do want to mention, folks know today as 4/20 for obvious reasons.

But it's also Doge Day, as folks are pledging to try to take Dogecoin to $1. It is not going well right now, about $0.35. That is in the red right now, down over 7 and 1/2%. Now, yesterday, Eddie Ghabour said that Doge would not exist once this crypto bubble bursts. I want to ask you, one, if we are in a cryptocurrency bubble as you see it, and what do you think the future holds for Dogecoin?

DAN RUSSO: You know, it's hard to say what the future holds for Dogecoin. Do I think we're in a crypto bubble? That's hard to say as well. The way I view crypto is the way I view any other asset that's tradable and liquid. I come to the markets, and we have Potomac come to the markets from a trend and momentum perspective and then add in a little bit of sentiment. So if you look at what's happening with Doge right now, right, arguably, a bullish trend with a lot of momentum behind it and a lot of bullish sentiment behind it.

I think what's important, whether you're trading crypto or any crypto asset or any asset in general, is really the process that you have to manage your risks. It's one thing to identify that something has made a parabolic move to the upside and trying to participate in it. It's another thing to have an understanding of what are you going to do when that change-- when that trend changes and how are you going to manage your risk. Whether it goes from $0.35 to $1 from here, obviously, the trend is to the upside. There's a lot of momentum behind it. Who can see the future? Nobody. And that's why risk management is such an important part of any process.

ALEXIS CHRISTOFOROUS: Dan, is there a place in someone's portfolio-- and this is, of course, a very individual question, but would like to get your thoughts on other cryptocurrencies, like Bitcoin, Ethereum, Litecoin. I mean, today we saw Venmo come out and sort of push those cryptocurrencies further into the mainstream by saying that users can now work with four digital currencies. So what's your feeling on the longevity of, outside of Dogecoin, all those other cryptocurrencies?

DAN RUSSO: Well, I think that there's certainly some longevity there, at least for now, right? A lot of people have been talking about the death of things like Bitcoin for a long time. And it hasn't come to fruition. Whether or not it warrants a spot in people's portfolios, that is obviously an individual decision that has to be made within the context of overall goals, certainly risk tolerance, right?

The cryptocurrencies in particular, Dogecoin and things like Ripple, but Bitcoin as well tend to be pretty volatile. So at least having an understanding of that volatility and where an asset like that fits in for you as an individual, for your goals, your objectives, and your risk, is certainly a conversation that I think people should be having.

KRISTIN MYERS: Dan, earnings season kicked off fairly strong with the banks reporting. We've got a couple of companies that have reported already also beating expectations. Right now, however, we are seeing all three major indices in the red. What catalyst do you think the market is looking for to the upside?

DAN RUSSO: You know, earnings season is always interesting because everybody gets excited about earnings season but it's really the markets and the individual stock's reaction to the earnings reports that we pay attention to. We take a very systematic approach to the market at Potomac. A lot of our work does revolve around trend and momentum, and in particular, what happens when news comes out, and the market or stocks don't react the way you expect them to react? There's information there.

So we did get some strong earnings from the banks last week. We continue to get strong earnings this week. And the market has turned a little bit choppy. Earnings normally could be a catalyst, but perhaps, in this case, the catalyst could be a sell the news type event in the event that a lot of the good news has already been priced in. Expectations for earnings are clearly elevated as we lap the first half of last year when the global economy was brought to a halt. So, taking a look at the reaction to earnings, I think is a lot more instructive than trying to determine [INAUDIBLE] themselves are going to be.

KRISTIN MYERS: All right, Dan Russo, Potomac Fund Management, thanks so much for joining us today.