We Don’t Know How the Dogecoin Correction Will End


The cryptocurrency space has clearly been in a bear market. Many of the top names have fallen considerably after a rowdy yet fun surge to new all-time highs. For Dogecoin (CCC:DOGE-USD), we’ve seen a 70% fall from the highs to the recent low.

A close-up shot of a Shiba Inu with a grinning face.
Source: Wollertz / Shutterstock

For comparison, Bitcoin (CCC:BTC-USD) has fallen nearly 50% from its high, while Ethereum (CCC:ETH-USD) has sank 60.5% from peak to trough.

So Dogecoin has not held up as well as some of its larger-market-capitalization crypto peers. But honestly, that’s not too surprising. Dogecoin is newer to the scene (at least as a non-joke asset — it predates Ethereum), not to mention that it rallied about 1,000% in a month.

When you have an asset — whether that’s a cannabis stock, crypto or otherwise — popping off for a 50% to 100% gain in a day and rallying hundreds of percent in a few weeks, odds are there will be a painful correction.

For Dogecoin, we’re getting that painful correction now. The questions are:

  1. How deep will it correct?
  2. How long will it last?
  3. Is it safe to buy?

Breaking Down Dogecoin

Like other cryptocurrencies, Dogecoin runs on the blockchain. It can be used to make various transactions, and those transactions are all kept secure. In that sense, it operates in a similar fashion to Bitcoin or Ethereum.

But its origin is much different and its ability to survive is far more speculative. Case in point? Dogecoin wasn’t created to be a serious contender in the crypto space. “Doge was really started to poke fun at Bitcoin,” according to Bitwave CEO Pat White.

They used Dogecoin — which was inspired by a meme in which humorous text is overlaid on a picture of a Shiba Inu dog — to raise funds for things like the Jamaican bobsleigh team. Since then, Tesla’s (NASDAQ:TSLA) Elon Musk has become a big proponent of Dogecoin.

He will likely remain as a catalyst for this specific cryptocurrency for a while, too. Musk has tweeted favorably about Bitcoin in the past too, but his impact on Dogecoin can be much larger, given that Dogecoin has a much smaller market cap than Bitcoin.

While it’s one thing to speculate on potential upside in an asset, it’s another to be gambling. If the technicals are working in Dogecoin’s favor (more on those in a second), then traders have a reason to be long.

But for me personally, I consider Bitcoin, Ethereum and some of the more useful cryptos to be speculative enough. While Dogecoin may not be a joke anymore, the reason it was created is enough of a turn off for me. Further, it’s designed differently than Bitcoin, in that it’s not an effective store of value. Quoting from the Forbes article above, “there is no lifetime cap on the number of Dogecoins that may be created by mining … the cryptocurrency is highly inflationary, by design.”

Trading Dogecoin

Hollow candles chart showing the value of Dogecoin from early March 2021 to the present along with several moving average lines
Click to Enlarge
Source: Chart courtesy of TrendSpider

As seen in this daily chart, Dogecoin has enjoyed an explosive rally in the second quarter of 2021. The move ultimately sent it above 70 cents, albeit only briefly.

Since then, we’ve seen the price collapse lower. 42.5 cents is now acting as resistance while the 22 to 25 cent range is acting as support. Dogecoin also has uptrend support (seen in the blue line) in play.

If we see a break of uptrend support, 30 cents is on the table. That level has been support over the past few months. However, if Dogecoin breaks below this level too, then we could see a flush into the larger support area of 22 to 25 cents. Just below that range is the 21-week moving average as well.

On the upside, we really need to see it reclaim its short-term moving averages. Back above the 10-day and 21-day moving averages puts the 50-day moving average in play, along with the 42.5 cent mark.

Above all of those and perhaps 50 cents or higher is possible, but we’ll likely need a return to a crypto bull market to get there. Then the narrative changes for Dogecoin — in a good way.

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On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.

Article printed from InvestorPlace Media, https://investorplace.com/2021/06/we-dont-know-how-the-dogecoin-correction-will-end/.

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