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Dogecoin (DOGE) price dipped below $0.08 mark in the early hours of Jan. 10, while market data trends suggest a positive Bitcoin Spot ETF verdict could trigger further downside.
Market analysts and speculators are leaning heavily towards an imminent ETF approval verdict from the US Securities and Exchange Commission (SEC). Recent market data trends show that price correlation between Dogecoin (DOGE) and Bitcoin (BTC) have flipped negative over the past month. This alignment signals a potential DOGE price downswing if BTC reacts positively to an ETF approval verdict.
DOGE price correlation to BTC has dipped to 5-month low
Dogecoin, the pioneer memecoin, was created in 2013 as a light fork of the Bitcoin blockchain. Over the years, the fortunes of both Proof of Work (PoW) networks have been closely intertwined.
In recent weeks, however, DOGE and BTC prices have been trending in opposite directions. Dogecoin price has tumbled 26% from its local top record on Dec 11 to hit $0.078 on Jan. 10. But interestingly, BTC price has climbed 5% from $43,700 to peak at $47,972 during that period.
The correlation coefficient is a vital technical indicator that quantifies the correlation between the price movements of different assets. The chart below shows that the DOGE/BTC price correlation has declined to -0.52 as of Jan 10, its lowest in 5-months.
As things stand, Bitcoin and Dogecoin are now inversely correlated. A negative correlation coefficient of -0.53 means that a 10% increase in the price of Bitcoin is likely to be followed by a 5.3% decline in DOGE price.
With a Bitcoin ETF approval verdict looming, this trend could have a far reaching impact in the days ahead. An overwhelming majority of speculators and market analysts are leaning towards a positive verdict, which could potentially send BTC price into a parabolic rally toward $50,000.
Considering the negative price correlation, DOGE price could suffer significant downsizing, if this bullish scenario plays out for BTC.
Furthermore, on-chain data shows that Dogecoin miners and node validators have recently intensified their selling pressure in the past month. This reflects further confirmation that DOGE is at risk of a major price downtrend.
IntoTheBlock’s Miners’ Reserve metric, tracks real-time changes in balances of coins held in wallets controlled by recognized miners and mining pools. Dogecoin miners held a cumulative balance of 4.49 Billion DOGE as of Dec. 10. But, as depicted by the blue trendline in the chart below, that figure has rapidly dropped to 4.35 billion DOGE at the close of Jan. 9.
This shows that miners have offloaded 140 million DOGE from their cumulative holdings between Dec. 10 and Jan. 10. Valued at the current Dogecoin prices of $0.078, the recently-traded coins are worth approximately $11.13 million.
Strategic investors interpret a rapid decline in miners’ reserves as a significant bearish signal for 140 million newly-minted DOGE coins into the spot market that dilutes market supply. And when it is not met by a commensurate boost in demand, price decline often follows. Unsurprisingly, DOGE price has dropped 27% during the miners’ latest selling spree in the past month.
More importantly, a prolonged selling trend among miners suggests they are pessimistic about the coins’ short-term price prospects. Hence, a growing penchant to sell rather than stack up their reserves has emerged among investors.
Given how influential miners are on a proof of stake network, this could influence other strategic stakeholders within the Dogecoin ecosystem to take on bearish positions as well.
In summary, the negative correlation with Bitcoin means that Dogecoin price could drop significantly if the SEC issues an approval verdict on Spot BTC ETFs. Also, if the miners selling frenzy continues, it could further accelerate a DOGE price downswing.
Forecast: can Dogecoin price stay above $0.07?
Based on the market data trends analyzed above, DOGE price appears to be at risk of a major price correction. But for the bears to validate this price, they must flip the initial support buy-wall around $0.070.
IntoTheBlock’s Global In/Out of the Money (GIOM) data groups the current Dogecoin holders by their historical entry prices. It currently depicts that 573,930 addresses had acquired 47.5 billion DOGE at the average price of $0.071.
Given that this is the largest cluster of current Dogecoin holders, the bears could have a hard time breaking down the $0.070 support.
However, there’s a risk that a positive BTC ETF verdict could set off a wave of margin calls and stop-loss triggers in the Dogecoin markets. If this bearish scenario plays out, it could open the doors to $0.06 retest.
On the upside, if Dogecoin price rebounds above $0.10, the bulls could effectively negate this pessimistic forecast. But in this case, the 338,590 addresses that acquired 14.97 billion DOGE at the average price of $0.084 could mount a major resistance.
Failure to breakout of that sell-wall could see DOGE price retrace again.
This article first appeared at crypto.news
