You can still edgeguard with the Cape, but you'll have to adjust your tactics a little.
Given the auto-grab and backwards-grab mechanics, simply standing on the edge and Caping won't work. Chances are the Cape won't hit them before the auto-grab activates, and even if it does they can simply DI into a reverse grab (depending on the recovery, of course. Stuff like Fox's and Ike's Side-B moves are still doomed to the Cape).
So, you can do the following:
-Edgehop to Cape
-Run or jump off the stage and Cape, then recover
-(If you get so lucky as to have the Cape connect before the auto-grab) Cape to smash attack or fair
Be wary; the Cape is the same as Melee but the animation is a little different; part of its hitbox is invisible now.