Why Did Dogecoin Plummet Today?

Key Points

• Dogecoin and cryptos across the board are still seeing red.

• The Federal Reserve's 0.25% rate cut last week was smaller than many investors had hoped.

• Riskier investments like Dogecoin tend to outperform as interest rates fall.

• 10 stocks we like better than Dogecoin ›

Dogecoin (CRYPTO: DOGE) fell on Thursday, down 6.8% as of 5:09 p.m. ET, as measured from 4 p.m. on Wednesday. The move comes as the S&P 500 (SNPINDEX: ^GSPC) and the Nasdaq Composite (NASDAQINDEX: ^IXIC) both lost 0.5%.

The meme coin continues its week-long slide following Monday's cryptocurrency flash crash as investors await key economic data.

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Crypto investors await PCE data

Cryptocurrencies across the board are in the red this week, following Monday's sharp drop driven by the unwinding of leveraged positions from traders who had bet on the Federal Reserve cutting rates more aggressively than it did. Many of these positions were forced to liquidate after the Fed opted for just a 0.25% cut and signaled it could be the only reduction this year.

Now, traders are watching Friday's release of personal consumption expenditure (PCE) data. This is the Fed's preferred inflation gauge and could reveal what the Fed's next moves will be. Lower rates generally make traditional safe-haven investments less attractive, prompting investors to shift toward riskier assets, like Dogecoin and other cryptocurrencies.

Image source: Getty Images.

Dogecoin is a very risky asset

The fact is, Dogecoin is a meme coin and carries significant risk. It really shouldn't be viewed as a serious investment; it is more of a speculative bet. Its value is derived from "vibes" and hype, and that makes it especially sensitive to broader movements in the market. I would not invest in Dogecoin.

Investors should instead look to cryptos with a proven track record of value and projects with innovative technology. Bitcoin and Ethereum are much smarter plays.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.