Dogecoin (CCC:DOGE-USD), a meme-inspired cryptocurrency, rose more than 12,000 percent this year, reaching a high of about 73 cents before collapsing due to a market crash caused by China.
Earlier this month, the cryptocurrency that began as a joke approached a market capitalization of $100 billion. Dogecoin has corrected significantly since that historic high. After several failed attempts to rally higher, it is now trading at around 32 cents.
China has made it illegal for financial and payment institutions to provide cryptocurrency services. The hardline stance on digital currencies is neither new nor surprising. Authorities closed local cryptocurrency exchanges and prohibited initial coin offerings, also known as ICOs — token sales used to fund cryptocurrency projects — in 2017.
The wild fluctuations in cryptocurrency prices, according to three Chinese banking and payment industry bodies, “seriously violate people’s asset safety” and disrupt the “normal economic and financial order.”
As a result of this announcement, cryptocurrencies like Bitcoin (CCC:BTC-USD) and Ether (CCC:ETH-USD) fell to three-and-a-half month lows, recording their biggest one-day loss since March of last year. Many analysts believe China’s announcement is related to its own digital yuan, or e-CNY, which is currently being tested in the public sphere as of April.
Nonetheless, the move was a major setback for cryptocurrency investors. To add insult to injury, Tesla (NASDAQ:TSLA) CEO Elon Musk announced on May 12 that Tesla (NASDAQ:TSLA) would suspend vehicle purchases using Bitcoin due to environmental concerns about the crypto mining process. Dogecoin, which Musk promoted, took the least amount of damage. Nonetheless, it suffered a significant drop. The main question is whether this meme currency has intrinsic value.
Dogecoin will eventually recoup its losses. It is not, however, the next Bitcoin. Investors who buy into this story are in for a rude awakening.
Bitcoin aspires to be a medium of exchange and a store of value in addition to national currencies. The goal of Bitcoin, which was launched in 2009 with an extremely detailed white paper written by Satoshi Nakamoto, the pseudonymous Bitcoin creator, was for it to become a leading decentralized digital currency. Investors hope it will act like gold and serve as a hedge against inflation. In comparison, Dogecoin began as a joke in 2013 by software engineers Billy Markus and Jackson Palmer. Markus and Palmer’s idea was based on the “Doge” meme, which depicts a Shiba Inu dog, and they didn’t want it to be taken seriously.
But even Markus did not anticipate the amount of support DOGE is receiving. Nothing could have prepared him for what was about to happen. The cryptocurrency recently exploded as a result of social media buzz from celebrities such as Elon Musk and Mark Cuban.
However, the fact remains that DOGE was “created for sillies.” Meanwhile, Bitcoin is a digital currency with a specific purpose. Bitcoin also has a limited supply of 21 million units, making it valuable and a natural inflation hedge. Dogecoin, on the other hand, is inflationary due to its potentially infinite supply. Finally, Bitcoin has a strong ecosystem that has been in place for 12 years, and institutional interest in that ecosystem is growing by the day.
Despite its recent decline, the meme-themed cryptocurrency still has the potential to reach $1. However, it has become more difficult since the wider crypto space has experienced a correction. DOGE has a support level of $0.328. It fell below that level in the early hours of May 28 but is now on the rise, so only time will tell if that support holds. Meanwhile, the resistance level is $0.399.
If you are still holding this coin, I recommend that you wait until the digital currency reaches that level before taking profits. DOGE’s long-term prospects are murky. BTC growth will be primarily driven by an increase in institutional investment beginning in 2020. When an investor sees that smart money is backing an asset, he or she feels more secure. This will not change as a result of the market downturn.
However, as previously stated, Dogecoin does not have this luxury. The only reason this currency has done so well is because of celebrity endorsements. When compared to DOGE, Bitcoin and Ethereum both have inherent qualities that DOGE does not.
In terms of Bitcoin’s outlook, investors were taken aback. However, it is not a major obstacle for Bitcoin to overcome, and it is insignificant in comparison to the issues and market downturns it has faced in the past.