Did Dogecoin Crash the Crypto Markets?
In early February, I told you to avoid Dogecoin (DOGE).
Back then, the popular “meme” cryptocurrency that features a logo of a Shiba Inu had rallied 600% after Elon Musk tweeted that: “Dogecoin is the people’s crypto.” Other celebrities such as Snoop Dog, Gene Simmons and one of the Jonas brothers also tweeted their support.
Since then, we’ve learned that Musk has much more pull than I do in the crypto markets. The price of DOGE climbed another eight times to $0.45 last week. Legions of TikTok and Instagram influencers joined in the mania, urging their followers to buy into the latest canine crypto craze.
Musk has been a Dogecoin cheerleader for a long time; last summer, he tweeted a meme of the “dogecoin standard” overtaking the global financial system, which received over half a million likes.
If you haven’t gone full DOGE yet, Dogecoin is an offshoot of Litecoin which itself is an offshoot of bitcoin. However, unlike its predecessors, Dogecoin has unlimited supply.
There is no scarcity value, and the current number of coins in circulation is 129,237,738,389. That means it’s more akin to the traditional fiat currencies that cryptocurrencies are trying to do away with.
At a current market cap of $46 billion, Dogecoin is right behind companies such as liquor giant Constellation Brands and casino operator Las Vegas Sands.
Much like those companies, trading Dogecoin can feel like a drunken gambling spree — although it will probably overtake both in the next few days.
But it hasn’t been a straight line to Dogecoin heaven…
What Dogecoin’s Volatility Says About the Crypto Market
DOGE’s price has gone from a fraction of a penny to $0.45, before crashing 50% in less than a day over the weekend. It’s since recovered, and is now headed to new all-time highs.
Investors, cognizant of how meme stocks such as GameStop and AMC sent stocks into a tizzy earlier this year, are growing nervous that Dogecoin’s pullback might spill into other crypto markets.
Over the past few days, bitcoin dropped 20% from its highs, while Ethereum sank nearly 25%.
So, what happened over the weekend that sent crypto markets into a tailspin?
Some think it’s because crypto seemed to only go up and folks needed a reminder that markets go both ways; or it could have been that the excitement around the Coinbase initial public offering was a sell-the-news type event. Or maybe the Dogecoin drop shook out the TikTok traders.
What’s really going on is that the amount of leverage that crypto traders can access on different exchanges creates more volatility than other investment markets.
In stock trading, it’s common to get 2-to-1 leverage from your broker. Stock day traders can also get 10-to-1 leverage.
The leverage in the less-regulated cryptocurrency market can be much higher. Some exchanges such as BitMEX offer 100-to-1 leverage. That means you can buy $500 of bitcoin and leverage it into a position size of $50,000.
Of course, if you have $45,000 of bitcoin on margin and the position goes against you by a few percentage points, the exchange will automatically liquidate the position and you lose your equity.
That’s pretty much what happened over the weekend as nearly 1 million leveraged traders were liquidated to the tune of $9.4 billion in 24 hours.
The Crypto Rally Marches On
Cryptocurrencies suffered a sharp drop that cleared the decks and removed over-leveraged traders from their positions.
While a 20% drop is considered a bear market correction, it’s also par for the course during crypto rallies.
After the forced selling happened, the markets quickly snapped back. This is typically a sign that traders are on the sidelines waiting to buy pullbacks.
This is a bullish sign for the crypto markets, although I’m still not convinced Dogecoin is the best place to put your money.
If you’d like to learn more about the best crypto opportunities out there now, I recommend you check out my special report called Cryptocurrency’s Next Wave — 3 Trades to Multiply Your Money 12 Times in the Next 12 Months.
To learn how to get your copy today, click here.
Editor, Automatic Fortunes
My career on Wall Street started while I was in college. I spent a summer interning for Merrill Lynch in the middle of the ‘90s bull market. I was fascinated with trading, and as a result, after college, I joined Salomon Brothers in the famed mortgage bond trading department. Later, I spent time at Citigroup working with credit derivatives. Eventually, I needed to walk away from the excess of Wall Street. That’s when I joined Banyan Hill in 2017. Now I help readers get ahead of the market and build their retirements.