Dogecoin Price Analysis – A bullish near-term reversal

Dogecoin (DOGE) was released on December 6th, 2013, emerging out of an effort to increase cryptocurrency adoption, understanding, and awareness. Originally inspired by the Shiba Inu meme, the cryptocurrency was created by Billy Markus, with the help of Jackson Palmer, who left the project in 2015.

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DOGE has an available coin supply of 124.44 billion, among the highest-circulating supplies among all coins. The coin ranks 28th on the Brave New Coin market cap table, with a market cap of US$306 million with US$21 million in trade volume over the past 24 hours.

Based on the Scrypt Proof-of-Work coins Luckycoin and Litecoin, DOGE has a fixed block reward of 10,000 DOGE, and a one minute block time with no limit on the total number of coins created. The DOGE block height is currently above 3,216,731 and inflation is currently 4%.

After security concerns revolving around a potential 51% attack in 2014, the creator of Litecoin (LTC), Charlie Lee, proposed a merged mining solution for DOGE and LTC. Merged mining allows for cryptocurrencies with the same consensus algorithm to be mined simultaneously. After the LTC block reward halving in August, DOGE hash rate also declined.

Source: BitInfoCharts

DOGE transactions per day (line, chart below) have largely ranged from 20,000-50,000 since December 2017. Over the past year, DOGE has had more transactions per day than Monero (XMR), Dash (DASH), and Zcash (ZEC). Average transaction values (fill, chart below) have declined since January 2019, but remain above historical levels.

On January 10, 2019, DOGE reached a record high US$3.27 billion in on-chain daily transaction volume, surpassing all other coins that day, with the exception of Bitcoin (BTC). Average transaction fees are currently US$0.00348 and have consistently been lower than BTC, LTC, BCH, XMR, DASH, ZEC, and Ethereum (ETH) (not shown).

Source: CoinMetrics

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) is currently 90 and rising. An NVT below 30 would likely indicate organic and sustained bull market conditions. Inflection points in NVT can be leading indicators of a reversal in asset value. An uptrend in NVT often suggests a coin is overvalued based on its economic activity and utility, which should be seen as a bearish price indicator, whereas a downtrend in NVT suggests the opposite.

Active and unique addresses are important to consider when determining the fundamental value of the network based on Metcalfe’s law. Monthly active addresses (MAAs) are currently 50,000 (fill, chart below), well above the historic norm but down from a May high of 93,000. A growing number of MAAs would suggest bullish price action. DOGE has more MAAs than Zcash (ZEC), Ripple (XRP), and Bitcoin-Cash (BCH).

The market cap divided by the realized cap (MVRV) is another crypto-native fundamental metric used to assess overbought or oversold conditions. Realized cap approximates the value paid for all coins in existence, by summing the market value of those coins at the time they last moved on the blockchain.

Historically, periods of an MVRV less than one have represented buying opportunities, whereas periods of an MVRV greater than three have represented selling opportunities. All three MVRV levels above three have represented local highs in price. Currently, MVRV is 0.86, suggesting the potential for additional upside, as well as a buying opportunity.

Turning to developer activity, DOGE has seemingly had very little dev activity over the past few years, with seven repos and just eight commits on the main Github repo in the past year. According to several Dogecoin devs, work is not done on the master branch, therefore commits are not visible.

Dogecoin Core v1.14.2 was released via a soft fork in November 2019, and, 2018 through 2019 saw nine full releases. Dogecoin Core v1.17 is currently a work in progress. The most recent protocol upgrade brought improved validation speed and network propagation performance, leading to much shorter sync and initial block download times.

Most coins use the developer community of GitHub, where files are saved in folders called “repositories” or "repos," and changes to these files are recorded with “commits.” Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity.

Source: Github

Dogecoin news in the markets is that exchange-traded volume has been dominated by the Tether (USDT) and Turkish Lira (TRY), and Bitcoin (BTC) pairs over the past 24 hours. The top volumes by exchange include HitBTC, Binance, and Huobi.

Over the past few years, DOGE has experienced a raft of exchange listings, including being added to Robinhood and Yahoo! Finance in July and August 2018, respectively. Additionally, DOGE/USDT pairs were added to Poloniex and Bittrex in August 2018 and September 2018, respectively. In May 2019, DOGE was added to the Coinbase Wallet. In July, Binance listed DOGE/BNB, DOGE/BTC, DOGE/USDT, DOGE/PAX, and DOGE/USDC trading pairs and OKEx added DOGE/USDT and DOGE/USDK trading pairs. Binance then delisted DOGE/PAX and DOGE/USDC pairs in September. In October, Binance.US and UpBit listed DOGE/USD and DOGE/BTC pairs, respectively.

Worldwide Google Trends data for the term "Dogecoin" spiked to an all-time high in January 2018, mirroring a local high in price at that time. Overall, searches for “Dogecoin” remain down significantly from early 2018. A slow rise in searches for "Dogecoin" preceded both highs in September 2019 and March 2019, likely signaling interest from new market participants at that time. A 2015 study found a strong correlation between the Google Trends data and BTC price, while a May 2017 study concluded that when the U.S. Google "Bitcoin" searches increased dramatically, BTC price dropped.

Dogecoin Technical Analysis

As the DOGE/BTC spot price sits in a range of historic price lows, Volume Profile Visible Range, pivot points, Oscillators, Bollinger Bands, Ichimoku Cloud, and Exponential Moving Averages can be used to help assess the potential of a bullish reversal. Further background information on the technical analysis discussed below can be found here.

DOGE has experienced poor liquidity on USD pairs and trading has been dominated by the BTC pair. Since 2014, the DOGE/BTC weekly chart has shown a buy zone from 15-25 sats, and a sell zone of 100-120 sats. Currently, at a cycle low, the 27 sat price represents a low-risk, high-reward trading zone for long participants. Consequently, the Volume Profile Visible Range (VPVR) shows significant support within the 15-25 sat historic buy range with significant resistance at the 40 sat zone.

Historically, DOGE has retraced to 100 sats over the course of three to six weeks, once a definitive bottom has formed. Yearly resistance pivots sit at 44, 66, and 106 sats. A bullish breakout will likely find resistance at each pivot point. RSI, near 50, also suggests a complete reset of any previous bullish or bearish momentum.

Bollinger Bands (BBands) are also tight and showing a bullish bias, suggesting further upside. BBands measure volatility and attempt to predict the direction of price action as consolidation is occurring. If a breakout occurs while the price is above the 20SMA (red line), the indicator suggests bullish continuation. The BBands expand with volatility, after the move has happened. BBands have only ever been this tight twice on the weekly chart, both representing bearish continuation.

Turning to the Ichimoku Cloud, four metrics are used to determine if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.

The status of the current Cloud metrics on the weekly time frame with doubled settings (20/60/120/30) are bearish; the spot price is below the Cloud, the Cloud is bearish, the TK cross is bearish, and the Lagging Span is below Cloud and above the current spot price. A traditional long entry will not trigger until the current spot price is above the Cloud with a bullish TK cross. However, a large and sustained TK c-clamp suggests oversold conditions, with a mean reversion attempt to 53 sats likely in the near future.

On the daily chart, the Cloud is neutral; the spot price is below the Cloud, the Cloud is nearly bullish, the TK cross is bearish, and the Lagging Span is below Cloud and above the spot price. Again, a traditional long entry will not trigger until the spot price is above the Cloud with a bullish TK cross.

The 50-day Exponential Moving Average (EMA) and 200-day EMA have been bearishly crossed for 470 days, with the price testing the 200-day EMA several times over the past six months. A bullish 50/200 EMA cross with a bullish Kumo breakout will likely signify sustained bullish momentum.

Conclusion

After almost being left for dead in 2014, DOGE was saved by a merged mining initiative with LTC. The coin was created as an experiment and flash-in-the-pan joke, but has stood the test of time due to its enduring position as a mascot for the crypto community. As such, DOGE continues to serve as an important gateway and playground for the cryptocurrency curious. Protocol development also remains strong with nine full releases over the past two years.

Technicals for DOGE/BTC market suggest a near-term reversal as the spot price has continued to grind the historic low for several months. DOGE/BTC often performs best when BTC/USD enters a period of consolidation. Every spike in DOGE’s price history to 100 sats has been unable to consolidate for more upside, leading to a prolonged 200+ day downtrend. Any further lower lows on the DOGE/BTC pair will likely meet buyers who expect the high-reward, low-risk level to act as expected. In the near term, a move above 33 sats should be seen as a leading bullish momentum indicator.