The crypto world has been in doldrums since late last year, with selling in the space continuing unabated. Meme coin Dogecoin (CCC:DOGE-USD), despite having a cult-like following and the backing of Tesla’s (NASDAQ:TSLA) high-profile CEO Elon Musk, was not spared either.
Source: shutterstock.com/Igor Igorevich
Investors pinned their hopes on a turnaround at the start of the new year but that was not to be. On the contrary, the downward momentum accelerated, sending most cryptos deeper into bear-market territory.
Dogecoin Stuck In a Rut
Dogecoin, themed after a meme based on a Japanese breed of dog, had a fairly decent outing in 2021, having racked up over 3,500% gains. In comparison, Bitcoin (CCC:BTC-USD), the most valued cryptocurrency, advanced about 60% during the year.
Much of DOGE’s advance in 2021 came in the first half, helped in part by Musk’s occasional tweets in support of the crypto. The self-proclaimed “Dogefather” sent the meme coin skyrocketing to an all-time high of 73.7567 cents ahead of his “Saturday Night Live” appearance on May 8.
The staunch support lent by celebrities, including Shark Tank star and Dallas Mavericks owner Mark Cuban and rapper Snoop Dogg, along with the Dogecoin community, which stood behind the meme currency like a bulwark, helped its cause further.
The gains, however, could not be sustained. Dogecoin’s slide began even before the other major cryptos peaked. From its all-time high, DOGE trended lower, falling through one support after another, before troughing at 13.2826 cents on Dec. 4. This marked a peak-trough decline of about 82%.
The downtrend continued into 2022. Year-to-date, it has lost over 25%
The Week That Was for Dogecoin
The week ended Jan. 21 was one to forget for most financial assets, as rate hike fears began working through the mind of investors. Tech stocks, often considered the leading indicator of stock market performance, dragged the indices lower in the week’s sell-off. The Nasdaq Composite Index shed 7.6% compared to a more modest 5.8% pullback by the SPDR S&P 500 ETF Trust (NYSEARCA:SPY).
Along with the broader equity market sell-off, cryptos also plunged, pressured by worries about a potential Bitcoin ban in Russia and apprehension concerning further actions by China to rein in the digital currencies.
Closer to home, the Federal Reserve is contemplating the launch of a U.S. digital currency backed by the central bank. Last Thursday, the Fed released a discussion paper, analyzing the pros and cons of creating a central bank digital currency for the U.S. A Fed-backed digital dollar vests all the advantages conferred by cryptocurrencies without the volatility and usage fees associated with them.
Dogecoin started last Monday’s stock market session at 17.7187 cents and ended lower in each of six sessions of the week before staging a modest recovery on Sunday. The crypto ended Sunday at 14.1863 cents, nearly 20% down from where it was trading the same day the previous week.
Barring stablecoins such as Tether (CCC:USDT-USD) and USD Coin (CCC:USDC-USD), most major cryptos sunk during the week. Bitcoin dropped about 16% for the week and Ethereum (CCC: ETH-USD) fell a steeper 24%.
DOGE Positioning for a Leap Forward?
After the brutal selloff in the past week, cryptocurrencies got off to a positive start on Monday but reversed course shortly after and are largely languishing in negative terrain. Given most cryptos have become bargain buys, considering the levels they were trading in before early November, a rebound could be in the cards.
The trajectory of cryptocurrencies during the week will hinge on a multitude of factors. Tech earnings scheduled for the week will likely offer directional cues for stocks in the space. Positive reports could lead to a turnaround in equity market sentiment, and this could prove salubrious to cryptocurrencies as well.
The unfolding week will also witness the Federal Open Market Committee, the policy-setting arm of the Fed, meet for the first time this year. The Jan. 25-26 FOMC meeting is widely expected to be a non-event. Fed Chairman Jerome Powell signaled earlier this month at the Senate Banking Committee hearing that asset repurchase may end in March and the central bank will begin raising rates over the course of the year, if things pan out in line with expectations.
The Fed commentary, however, can move markets, depending on how hawkish/dovish the statement is.
A higher-interest-rate environment is negative for cryptocurrencies, as investors may prefer moving money out of this volatile asset and into higher interest-yielding bonds.
Among DOGE-specific catalysts, Musk singularly can reverse the fortunes through his tweets. In the Time “Person of the Year” interview, Musk clearly explained as to why he believes Dogecoin has a better transactional value than Bitcoin. More mainstream adoption could also lent support.
Dogecoin Stares At Catalyst-Rich 2022
DOGE, in particular, has several impending catalysts in 2022. Tesla has begun accepting Dogecoin as a payment for some of its merchandise. Should Musk and team opt to expand the usage of the meme currency for vehicle purchase, it should serve a big boost for the crypto.
The launch of the DOGE-funded Doge-1 satellite by Musk’s SpaceX; the release of a digital wallet by Robinhood (NASDAQ:HOOD), which will allow deposit and withdrawal of select cryptocurrencies; and the Doge-Ethereum bridge, which is expected to be built in 2022, are all seen as other catalytic events by the community.
Weighing in all the scenarios, it appears that the joke crypto promises more upside than downside in the near term. DOGE supporters and its backers have the potential to move the crypto off the bottom, although caution could be the watchword for those looking at the currency as an investment option. Long-term, things are still murky, given the regulatory overhang and a lack of meaningful fundamental value associated with it.
On the date of publication, Shanthi Rexaline 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.
Shanthi is a contributor to InvestorPlace.com as well as a staff writer with Benzinga. Equipped with a Bachelor’s degree in Agriculture and an MBA with specialization in finance and marketing, she has about two decades of experience in financial reporting and analysis, and specializes in the biopharma and EV sectors.