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Two Key Reasons Why Dogecoin (DOGE) Just Dove 20% Under $0.01

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January 4, 2021
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Two Key Reasons Why Dogecoin (DOGE) Just Dove 20% Under $0.01
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Dogecoin (DOGE) is down 20% in the past 24 hours after a 100% rally on Friday. The “meme” cryptocurrency still has a market capitalization in excess of $1 billion and has registered $2 billion in trading volume in the past day.

Dogecoin began to rally a few weeks ago after Elon Musk, CEO of Tesla and SpaceX, reminded the market of the asset. In spite of the latest correction, DOGE is still up 100% in the past two weeks.

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DOGE’s ongoing correction comes in spite of overall strength in the altcoin market. Ethereum, for instance, has gained 35% against the U.S. dollar in the past 24 hours as capital cycles from BTC to altcoins. Bitcoin Cash and Litecoin, too, are moving higher.

Here are a few reasons why DOGE may be dropping in spite of the widespread outperformance of altcoins.

Related Reading: Wall Street Veteran Kickstarts Own Bitcoin Fund With $25m Investment

#1: Dogecoin Has Been A High Beta Bitcoin Play 

Over the past few weeks, Dogecoin has acted as a high beta Bitcoin play. That’s to say, it has traded similarly to BTC but with more overall volatility.

When BTC surged around 10% on Friday, DOGE had experienced a 100% gain. While the correlation is not perfect, it has continued into today.

Bitcoin is down 7.5% in the past 24 hours while DOGE has shed 22.5% of yesterday’s value.

This chart displays how DOGE’s value is correlated with Bitcoin, though exhibits more volatility over time. This volatility has dramatically increased in recent days, though, as can be seen explicitly in the chart.

This may continue in the near future as long as there is a strong retail contingent in the Dogecoin market, which has long been the case. The market may also be relatively illiquid compared to other large-cap altcoins.

Chart of DOGE's price action over the past month from TradingView.com
Related Reading: DeFi Founder Targeted in $8m Hack Says He Has His Hacker’s IP

#2: DOGE Market Was Overbought

While Dogecoin’s rally was a long time coming, the market quickly became overbought as the cryptocurrency gained 100% in a single trading day.

While there is no perfect measure to determine how much a market is overbought, there are few markets in which an asset that appreciated 100% in a single trading session can continue higher the next.

Markets are bound to pullback after overextending far above “normal” price regions.

It is likely, too, that capital cycled from Dogecoin into more attractive altcoins such as Ethereum and Cardano.

DeFi altcoins, too, have performed extremely well over the past 24 hours.

For the time being, DOGE’s overall trajectory is likely to be dictated by Bitcoin.

Related Reading: 3 Bitcoin On-Chain Trends Show a Macro Bull Market Is Brewing
Featured Image from Unsplash
Chart from TradingView.com
Price Tags: dogeusd, dogebtc
Two Key Reasons Why Dogecoin (DOGE) Just Dove 20% Under $0.01
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