Cryptocurrencies have had trouble getting off the mat lately, as sellers continue to pin them down and buyers lack the strength to take them higher. That goes for Dogecoin (CCC:DOGE-USD), but also Bitcoin (CCC:BTC-USD), Ethereum (CCC:ETH-USD) and others.
The simple truth is, despite the recent pain, there could be more. That doesn’t mean there will be more, but the technicals are not doing this group any favors.
Here’s the thing about cryptocurrencies: The group doesn’t have any real fundamentals. Or at least, it doesn’t have the traditional fundamentals investors use to analyze an asset. There is no revenue, cash flow or earnings. There is no growth. All of these metrics we can combine together to determine some sort of value. Then some of us — like me — will add technical analysis to it and come to a conclusion.
With cryptocurrencies, we have one dynamic and that’s supply and demand. In some cases, like Bitcoin, where supply is limited, this can help elevate the price when demand is strong. That’s particularly true with billions of dollars worth of Bitcoin “supply” locked away.
For Dogecoin though, it’s not that simple.
Breaking Down Dogecoin
Dogecoin started off as a joke, really, 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.
As if cryptocurrencies weren’t turning off enough investors, that alone is enough of a reason to avoid Dogecoin for many investors.
Joke or not, Dogecoin has made its mark on the crypto world. I don’t know that it’s going away any time soon. However, I would consider it a speculative investment and in that case, timing matters.
I was a big proponent of buying high-quality, high-growth stocks during the bear market a few months ago. While the overall markets were at or near all-time highs, growth stocks were getting buried. However, high-quality is the key part of that equation.
I was a buyer of the strongest growth stocks, not the revenue-less SPACs or fly-by-night EV stocks. The same could be said for cryptocurrencies. While there may be one more leg down in the crypto market, there’s a big difference between averaging into Bitcoin or Ethereum vs. averaging down in Dogecoin.
At the end of the day though, this is perhaps my biggest issue with Dogecoin: “there is no lifetime cap on the number of Dogecoins that may be created by mining…the cryptocurrency is highly inflationary, by design.”
In other words, supply is continuously flowing into the market and will likely continue to forever.
Trading Doge
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Dogecoin still has the unique catalyst of Tesla (NASDAQ:TSLA) CEO Elon Musk.
Musk has been a big proponent of both Bitcoin and Dogecoin and has proven to have market-moving capabilities with his tweets. Should the bull market return and/or should Musk start pounding the table on Dogecoin, it could enjoy a nice move to the upside.
That’s the difference though: cryptos aren’t in a bull market. During a bull run, the speculative plays scorch higher. That’s what draws in investors and makes spec plays so appealing. However, they get crushed in a bear market, and Dogecoin fits both of those observations.
So where does the 20%-plus dip fit into the situation?
Dogecoin is currently trading near 19 cents. As of now, the trend is pointed lower, as it continues to squeeze to the downside. If we were to test the 16 cent level, which has been support, that would leave Dogecoin down about 10% from current levels.
If it were to fall even further down to the 50-week moving average, we’d be looking at a decline closer to 40%. Given that we’re already down so much from the highs, I’m not looking to that level at the moment. For now, let’s see what happens if Dogecoin gets to 16 cents.
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.
