Why Dogecoin's Price Was Sinking on Sunday - The Motley Fool

What happened

The mighty bark that was Dogecoin's (DOGE -12.06%) bark at the end of last week softened into a whimper on Sunday. The effect of the cryptocurrency's frequent cheerleader Elon Musk buying Twitter (TWTR 0.66%) was obviously fading fast. As of mid-afternoon that day, the meme cryptocurrency's price was down by nearly 9% over the preceding 24 hours. All things considered, Dogecoin still rose 60% between Friday afternoon and Sunday evening, Eastern Time.

So what

Like many other cryptocurrencies frozen by the crypto winter, Dogecoin wasn't doing particularly well before The Musk Effect took hold. As the Tesla (TSLA 1.52%) CEO neared success in his renewed pursuit of Twitter, however, investors rediscovered their love of the coin. When the deal was finally clinched, Dogecoin saw a very healthy price pop.

To his credit, Musk does more than simply talk the talk with the cryptocurrency. Against any solid logic or sense, Tesla itself holds dogecoin (or at least it did, as of this summer), and accepts it as a form of payment. In the past, the company's leader has tweeted enthusiastically from time to time about its merits.

So it seems the coin's subsequent slide is due in no small part to profit-taking, as many who loaded up on it are now booking their quick and easy gains now that the Twitter deal is done. It isn't hard to drive Dogecoin up or down sharply, as it's very inexpensively priced and any heavy action usually results in quite the price swing.

Now what

While Dogecoin can be volatile, it's likely that the recent roller coaster in the wake of the Musk/Twitter saga will level out. Following that, it'll probably pop and then drop after the Tesla and Twitter honcho makes a pronouncement about it. And with the unpredictable Musk, you just never know if and when that might happen.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla and Twitter. The Motley Fool has a disclosure policy.

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