Over the weekend, the price of Dogecoin (CCC:DOGE-USD) surged higher. On Saturday, the price of Dogecoin jumped from 17 cents to as high as 21 cents in the span of a few hours.
This was a welcome development. Dogecoin has been in a sharp downtrend for weeks now. As I warned in June, Dogecoin was on the verge of a steep technical breakdown if the price of Doge broke much south of key support at the 30-cent mark.
That’s precisely what happened. Once Dogecoin moved below 30 cents, it quickly tumbled another 40%. This was logical, as Dogecoin’s price rose sharply on the way up, and thus there were few support levels on the chart to cushion the ensuing fall.
Dogecoin finally showed signs of a pulse this weekend. That’s largely thanks to Elon Musk. On Twitter, Musk changed his profile picture to one of him wearing sunglasses with a reflection of the Dogecoin Shiba dog. On Saturday, responding to a Dogecoin meme, Musk also tweeted out a message seemingly in support of the Dogecoin cryptocurrency.
This gave Dogecoin a much-needed burst of enthusiasm that got the price moving higher. However, it’s unclear that this will last. DOGE gave back its gains this week and is trading at less than 20 cents again.
The broader cryptocurrency market remains in a deep slump. Bitcoin (CCC:BTC-USD) is struggling to hold on above the $30,000 mark, and other cryptos are acting even more weakly. In that environment, it’s hard for Dogecoin to sustain any meaningful rally. That’s particularly true because Dogecoin doesn’t have a great deal of underlying fundamentals, either.
Dogecoin: Still N0t Much Underlying Appeal
I’ve long pointed to the lack of adoption of Dogecoin as a major risk. While the meme is fun and all, ultimately a cryptocurrency has to have some utility to justify long-term valuation. Dogecoin does not have a strong developer community or technical backing.
Indeed, Dogecoin’s co-founder Jackson Palmer lashed out at cryptocurrencies last week, saying:
I believe that cryptocurrency is an inherently right-wing, hyper-capitalistic technology built primarily to amplify the wealth of its proponents through a combination of tax avoidance, diminished regulatory oversight and artificially enforced scarcity.
Now, Dogecoin’s defenders can say Palmer’s comments are about cryptocurrency broadly, and not just Dogecoin. That’d be true. Still, it’s quite a sentiment check from one of Dogecoin’s key figures.
I will give the meme token its due for picking up usage from one unlikely source: Hamas. According to Israel’s National Bureau for Counter Terror Financing, Israel seized millions of dollars in donations to the blacklisted Palestinian organization from various crypto wallets. These donations were made in the form of various cryptocurrencies, including Dogecoin. On second thought, this is probably not the sort of adoption that Dogecoin’s supporters are looking for.
At the end of the day, Dogecoin needs to achieve broad uses in the real world to maintain a lofty valuation. Being a gimmick marketing tactic for a few U.S. companies probably isn’t enough to get there. And being used for illicit money transfers is not ideal either.
There is an argument that Dogecoin can derive value simply from being a meme. That’s true to an extent. But a bunch of the meme stocks, such as GameStop (NYSE:GME), have been in steep decline in recent weeks. Truth is, at some point, memes get stale. Attention moves elsewhere. When there’s little underlying economic reason to own an asset, it becomes much harder to maintain a high price indefinitely.
Perhaps Musk or some celebrity influencer can get Dogecoin’s price moving higher once again. If it starts to rip, more people will buy simply because it’s going up. That’s classic momentum trading. There’s still a scenario where Dogecoin could have a comeback.
So far, though, most indications would suggest that Dogecoin is past the peak of its popularity cycle, and will generally continue trending lower in coming weeks and months.
On the date of publication, Ian Bezek 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.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.