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Why Dogecoin Is Plummeting Today

Motley Fool - Sun Jan 16, 10:49AM CST

What happened

The price of Dogecoin(CRYPTO: DOGE) is sinking in Sunday's trading. The cryptocurrency was down 5.7% over the previous 24-hour period as of 11:45 a.m. ET.

With Bitcoin and Ethereum roughly flat over the previous day of trading and the broader cryptocurrency market looking uncharacteristically stable, Dogecoin's sell-off likely stems from investors taking profits after recent gains. The token began climbing early in the week and posted even bigger gains after Tesla CEO Elon Musk announced that his electric-vehicle company would accept DOGE as payment for its merchandise. Now, the popular meme cryptocurrency seems to be taking a breather.

A sphere made of dollar signs disintegrating.

Image source: Getty Images.

So what

Over the last year, Elon Musk has been a Dogecoin holder's best friend. The famous executive has hinted at, and directly expressed, support for the token through Twitter messages and other channels, and his comments have frequently powered impressive gains for the meme-powered cryptocurrency. Even with the recent pullback, Dogecoin is still up roughly 19% over the last seven days.

After Musk published a Tweet on Jan. 14 announcing that Dogecoin could be used to purchase Tesla merch, the token's price quickly spiked 25%. While there doesn't appear to be any coin-specific news behind the cryptocurrency's pullback on Sunday, it's not surprising to see Dogecoin give up some ground on the heels of the recent pop.

Now what

Dogecoin trades down roughly 75% from the lifetime high that it hit last May. Yet, even after recent volatility in the broader cryptocurrency space and substantial draw downs for its token price, the cryptocurrency is still up roughly 1,900% over the last year.

Dogecoin Price Chart

Dogecoin Price data by YCharts

Dogecoin was started as a campy, dog-themed clone of Bitcoin, but the token went on to deliver seriously impressive returns for investors who got in before its massive pricing surge. The token currently has a market capitalization of roughly $23.6 billion and ranks as the 11th largest cryptocurrency by valuation.

While Ethereum, Solana, and Cardano have underlying blockchain service networks that help shape the performance of their respective cryptocurrencies, the pricing drivers for Dogecoin are currently limited to coin adoption and speculation. If more companies begin accepting the token as a payment method or more trading platforms introduce the option to buy and sell the cryptocurrency, that could help to send Dogecoin higher. However, investors should proceed with the understanding that Dogecoin is a high-risk investment, and its trading will likely continue to be highly volatile.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns and recommends Bitcoin, Ethereum, Tesla, and Twitter. The Motley Fool has a disclosure policy.