Dogecoin doubled in price immediately after Elon Musk sealed the deal on his Twitter takeover, but the reasons why this happened are speculative at best and driven by FOMO (Fear Of Missing Out) at worst. While crypto is an irrational market driven by hype, memes, and promises of a better future, there are some market behaviors that are well-known and can be anticipated. One of these behaviors is the direct correlation between Elon Musk's doge-themed tweets and Dogecoin's price volatility.
It is well-known that some of Elon Musk's tweets send Dogecoin's price up (or down), a phenomenon that is so reliable crypto traders have developed trading bots that watch his Twitter account and automatically place trades every time he mentions DOGE or anything doge-themed. Allegedly, this strategy is profitable for those who employ it, though it would be difficult to use without a well-coded trading bot. While this phenomenon is more accurate than learning technical analysis and making price predictions, understanding the Dogecoin and Elon Musk connection is not so straightforward. What is certain is that for every crypto trader who takes profits on a Dogecoin pump, a crypto newbie takes a hit buying the top.
Blockworks recently discussed that while Wall Street is taking interest in cryptocurrencies as a viable asset class and as a new technology, it still can't reconcile the existence and popularity of meme coins like Dogecoin (DOGE) and Shiba Inu (SHIB). Dogecoin still remains a top 15 cryptocurrency and holds an even higher place than the Solana blockchain in the crypto food chain, simply due to the power of retail investors and their love of memes. According to TradingView's chart, the Twitter-Musk DOGE rally began on November 25 and lasted four days before initiating its first pull-back on November 29. Then, on October 31, Elon Musk tweeted a picture of his Shiba Inu dog wearing a white T-shirt with Twitter's logo on it, sparking another rally. DOGE reached a top of nearly $0.16 and has now settled back to around $0.13.
From $0.06 To $0.13, But Why?
Many retail investors believe that Elon Musk will add Dogecoin to Twitter's tipping feature, which already allows for Bitcoin (BTC) and Ethereum (ETH) to be sent as tips to Twitter users. DOGE buyers are always looking for a reason to believe that Dogecoin will reach $1 someday, and while it is very possible for DOGE to reach $1, there is no reason why it would hold that price without a compelling reason for regular people to buy, hold, and use DOGE in their daily lives.
People are also speculating that Dogecoin will be accepted as a payment method for Elon Musk's Twitter Blue subscription plan, which is a significant part of why many retail traders bought into the DOGE pump. This move would be in line with Elon Musk's previous moves to accept Dogecoin as payment for Tesla merchandise and other services. However, regular people (who are not crypto speculators) will not buy DOGE en masse if Twitter rolls out Dogecoin payments and tipping, as Dogecoin offers nothing else to those who purchase it, and Twitter already offers BTC and ETH tipping.
While Dogecoin's price rallied in response to Elon Musk's takeover of Twitter, there's no guarantee this rally will hold. Any major negative news regarding Musk and Twitter will likely result in people panic-selling their DOGE holdings. At the same time, it is still possible for another DOGE pump to happen if Elon Musk tweets about accepting Dogecoin as payment for Twitter Blue or for Twitter's tipping feature, either of which would not be difficult or outside his interests to implement, but it is possible for Dogecoin to crash before that happens and potentially invalidate any gains made afterward.
Source: Blockworks