Dogecoin’s (DOGE) Recovery Affected by Ethereum

What makes this decline particularly concerning is the potential influence of Ethereum (ETH) on Dogecoin’s price movements. Historically, Dogecoin has demonstrated a pattern of rallying alongside major cryptocurrencies, particularly Ethereum, which has been a significant player in driving market trends. Yet, unlike in previous cycles where Ethereum’s strength propelled Dogecoin to new heights, the current landscape suggests that Ethereum might actually be a limiting factor for DOGE’s recovery.

This article delves into the intricate relationship between Dogecoin and Ethereum, exploring how the close correlation between the two could be affecting DOGE’s chances of bouncing back. Through an analysis of on-chain data and market indicators, we’ll examine whether Ethereum’s struggles could spell trouble for Dogecoin, and what this means for investors hoping for a resurgence in DOGE’s value.

Ethereum’s Play with Dogecoin

Recent analysis from IntoTheBlock reveals a strikingly high correlation of 0.92 between Dogecoin and Ethereum over the past month. This suggests that DOGE’s price is moving almost in tandem with Ethereum’s. Given Ethereum's status as the second-largest cryptocurrency, Dogecoin investors should keep a close eye on ETH’s price trends, as they are likely to have a considerable impact on DOGE’s future performance.

To clarify, the correlation coefficient ranges from -1 to +1. A coefficient close to +1 signifies a strong relationship where two assets move in similar directions, whereas a coefficient near -1 indicates that the assets typically move in opposite directions.

We recently highlighted that Bitcoin plays a significant role in DOGE’s price action. However, the strong correlation with Ethereum suggests that ETH's performance could be just as critical in determining Dogecoin's next move.

As of now, Ethereum (ETH/USDT) is trading at $2,448, marking a steep 37.46% decline over the last 90 days. If this downward trend continues, Dogecoin (DOGE) might struggle to recover as well.

Another factor that may be impeding DOGE’s comeback is the decline in Open Interest (OI) within the derivatives market. This indicator in the cryptocurrency market refers to the total amount of outstanding derivative contracts, such as futures or options, that are yet to be actioned. It serves as a key indicator of market sentiment and liquidity. An increasing Open Interest generally signals that more money is flowing into the market, as traders are either opening new positions or rolling over existing ones, often indicating a strong trend.

Declining Open Interest suggests that traders are closing their positions, which can be a sign of weakening momentum or uncertainty about future price directions. In volatile markets, rising OI is often associated with the potential for significant price movements, as it reflects heightened trading activity and interest in the asset. Falling OI can indicate a lack of confidence, leading to decreased trading volumes and potentially less price volatility.

A decrease in OI, which now stands at $1.25 billion for Dogecoin—its lowest since January 18—indicates that traders are closing positions and pulling out capital. Conversely, an increase in OI usually signals aggressive buying activity, which can drive prices higher.

DOGE Price Projections

In August, Dogecoin formed an ascending triangle pattern, with its price rising from $0.080 to $0.11. This pattern typically suggests a bullish trend, hinting at a potential price increase for DOGE.

However, the market bears rejected this upward movement. According to current analysis, DOGE may face difficulties rebounding in the near term. One indicator supporting this view is the Commodity Channel Index (CCI), The Commodity Channel Index (CCI) is a technical analysis indicator used to assess the momentum and strength of a price trend in the financial markets, including cryptocurrencies. It measures the difference between the current price and its historical average over a set period, helping traders identify potential overbought or oversold conditions.

When the CCI value is high, typically above +100, it suggests that the asset may be overbought, indicating that the price could soon experience a downward correction. Conversely, when the CCI falls below -100, it signals that the asset may be oversold, implying that the price could be due for an upward reversal.

Traders often use the CCI to spot potential trend reversals, enter or exit trades, and gauge the strength of ongoing trends, making it a versatile tool in both trending and range-bound markets. Unfortunately, Dogecoin’s CCI reading is negative, indicating a bearish trend is dominating.

As long as this negative trend persists, DOGE’s price could continue to decline, potentially dropping to its support level around $0.090. However, if Ethereum's price begins to rise, the strong correlation between ETH and DOGE could trigger a price increase for Dogecoin, possibly pushing it back to the $0.12 mark.