Dogecoin Is Staring Down a Critical Technical Test

I’m glad I had some time for the cryptocurrency phenomenon Dogecoin (CCC:DOGE-USD) to settle into its craziness before I fired off my opinion. You see, I was about to call someone out for giving what I perceived as grossly irresponsible advice regarding DOGE. After initially crashing from its spike high, the digital coin is back at it again, forcing me to rethink my analysis.

Dogecoin Cryptocurrency
Source: Orpheus FX / Shutterstock.com

Hopefully, you’ll forgive my lack of insight into Dogecoin. For me, this is one of the most perplexing trades that defy everything that I know about speculative investments. Perhaps that’s why I sound so confused and hypocritical about DOGE. Yes, I own some coins but I don’t even remember how I acquired them. A lucky break, I suppose.

And that really might be the best way to explain Dogecoin — a fortuitous accident. Previously, I characterized DOGE as a joke cryptocurrency because that is its genuine origination story. I would suggest that it’s also the most ironic digital asset. Created as a satire to mock the wide distribution of dubious coins, Dogecoin has become the epitome of post-novel coronavirus bubble fears.

For instance, DOGE enjoys a headline story from the New York Times. Even Federal Reserve chairman Jerome Powell got into the mix — well, sort of — when he fielded a question about market speculation related in part to Dogecoin. Though Powell didn’t mention the crypto coin in his answer, he did note that he saw froth in the equities market.

I don’t think it’s important whether Powell mentions DOGE by name or not. Rather, the most crucial takeaway is that we live in a world where you can mention an otherwise junk crypto to the Fed chair without a hint of disingenuousness.

Of course, it’s improbable that this extreme speculation will last. But if you’re speculating, when should you call it quits?

Keep an Eagle Eye on Dogecoin if You Must Trade It

Personally, my view is this: if you’re going to speculate on cryptocurrencies, you should put a bulk of your speculation funds into the major assets. They have provenance. Dogecoin has a fickle fanbase that could implode at any moment.

Still, where I failed in my last analysis was focusing too much on DOGE’s joke coin status. As my high school football coach always used to say, it’s not where you start but where you finish. So far, Dogecoin stands as one of the most impressive trades of this year. We’ll see if it finishes that way.

Further, DOGE actually has utility as far as the broader crypto-related economy is concerned. Due to its large supply, still relatively low price and blazing fast transaction speed, the coin is useful as a microtipping platform. This concept describes the ability for content consumers to tip their favorite creatives.

Nevertheless, the main headwind for this utility is that it’s not unique. Don’t get me wrong — I love the concept of decentralization and the digital economy. But goodness me, do we really need 5,000 coins or whatever to actualize this utility? At some point, you’d figure that there’s going to be massive consolidation in the crypto space.

Dogecoin price-volume divergence
Click to Enlarge
Source: Chart by Josh Enomoto

Sure enough, from a technical perspective, many analysts are not getting a good read on Dogecoin. In just a matter of weeks, DOGE increased its market value by over six times. And of course I wish I had a time machine to invest everything I had into DOGE: who wouldn’t?

But it’s also fair to point out that a technical divergence is brewing in the charts. While the DOGE price has soared to the stratosphere, the value of trading volume has declined precipitously over the same frame. Usually, technical analysts don’t like to see such divergences, because they indicate the lack of sustainability for the present move.

Do You Have a Better Way of Spending a Few Quarters?

Ultimately, the market will decide how far Dogecoin goes. And with serious backers — most notably Elon Musk — DOGE has the potential to rise higher. So, if you found some loose change in your sofa, you could throw that money toward your DOGE portfolio.

But that’d be about as far as I would go. Any money beyond sofa coins is too rich for my blood. Remember, the market giveth but it can just as easily taketh away.

On the date of publication, Josh Enomoto held a long position in DOGE.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.


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