After touching highs of 73 cents in May 2021, Dogecoin (CCC:DOGE-USD) witnessed a sharp correction.
After the euphoric rally, the meme coin has moved sideways for more than six months. After an extended period of consolidation, I believe that Dogecoin is positioned for another big rally.
Before discussing the meme coin further, let’s talk about fiat money. The dollar, and all other currencies globally, are fiat money.
The dollar is not backed by gold or any other hard asset. It’s simply backed by government trust. Further, there is no limit to the number of dollars that can be printed. The keyword is “trust.”
The story with cryptocurrencies isn’t radically different, except that that cryptocurrencies are decentralized and not backed by the government.
Dogecoin is an open-source peer-to-peer digital currency. The value of Dogecoin largely depends on the trust and adoption of the cryptocurrency. Things seem pretty bullish on that front.
Reasons to Be Bullish on Dogecoin
As a matter of fact, it’s Elon Musk who supported the price discovery for Dogecoin. According to Musk, Dogecoin “felt like the people’s crypto.”
For now, Dogecoin adoption seems to be robust. An October 2021 survey suggests that Dogecoin adoption in the United States is higher than that of Bitcoin and Ethereum.
Overall, Dogecoin has 4.5 million holders. It’s also worth noting that top ten holders own 40.94% of the cryptocurrency. Furthermore, top 100 holders have 62.27% of the meme coin. Clearly, a big portion of the supply is in strong hands.
With wider adoption of cryptocurrency, it’s likely that the number of holders will increase. I, therefore, expect Dogecoin to trend higher in the coming quarters.
A quick contract audit of Dogecoin also indicates that the cryptocurrency has a high score when it comes to decentralization and security. This is yet another reason to go long.
Overall, if Bitcoin is the dollar of the decentralized world, Dogecoin might be a Chinese yuan. It’s unlikely to be a global currency but is likely to survive in the coming years.
Further, it can increase in value as wider adoption further tightens the demand-supply scenario.
Navigating an Ocean of Cryptocurrencies
One potential concern for Dogecoin is the growing number of investment opportunities within the cryptocurrency space.
There are new coins and tokens with strong use cases. It’s likely that funds will flow from one theme to the other. Meme coin is just one investment theme within the crypto industry.
Coinbase (NASDAQ:COIN) CEO believes that the non-fungible token market can be as big or bigger than cryptocurrencies. If this holds true, there will be a reallocation of funds within the cryptocurrency and NFT space.
The idea is similar to big money moving from one asset class to another. Even with high inflation, gold has been relatively subdued.
A key reason is the flow of funds towards Bitcoin, altcoins and NFTs.
Within the meme coin space, Shiba (CCC:SHIB-USD) is a potential competitor. While Dogecoin remains sideways, Shiba has surged.
However, Shiba has less than one million holders. On a relative basis, Dogecoin has a wider adoption.
I believe that Bitcoin is positioned to trend higher in 2022. In general, a rally in Bitcoin is followed by an uptrend in altcoins.
Dogecoin has been subdued for an extended period and looks attractive from a technical perspective.
Dogecoin holders may also be eagerly anticipating a tweet or two from Elon Musk. That, in itself, can be a catalyst for Dogecoin doubling from current levels.
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Read More: How to Avoid Popular Cryptocurrency Scams
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.