Why Dogecoin Is Plummeting This Week

Key Points

• The cryptocurrency market is under pressure this week, and Dogecoin's token price is losing ground.

• Federal Reserve Chair Jerome Powell's comments about stock valuations have hurt crypto prices.

• 10 stocks we like better than Dogecoin ›

Dogecoin (CRYPTO: DOGE) is heading lower in this week's trading. The token price of the meme coin had fallen 14.1% over the past seven days of trading as of 5:30 p.m. ET Saturday. Over the same period, Bitcoin had fallen 5.6%, and Ethereum had fallen 10.8%.

The crypto market is getting hit with a wave of broad-based selling movement this week, and Dogecoin's valuation is contracting as part of the trend. Recent comments from Federal Reserve Chair Jerome Powell regarding valuations in the stock market have helped prompt sell-offs for most crypto tokens across the stretch.

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Why are comments about stock valuations hurting Dogecoin?

In a speech and conference held in Rhode Island this week, Fed Chair Jerome Powell stated that "equity prices are fairly highly valued" by many measures. While Dogecoin and other cryptocurrencies are not equities, his statements still have implications for the cryptocurrency market.

A cryptocurrency like Dogecoin is backed by little in the way of fundamentals. The token's primary utility is as a (highly volatile) method of payment or a speculative investment. If investors broadly decide that the stock market is too richly valued, there is a big risk that the crypto market will see big sell-offs in conjunction with a valuation correction trend for equities.

What's next for Dogecoin?

Even on the heels of this week's valuation pullback, Dogecoin remains a highly speculative investment play. Recent plans and launches for exchange-traded funds (ETFs) and crypto-treasury strategies built around the token provide potential bullish catalysts, but the meme coin will likely continue to see its valuation moves heavily shaped by broader trends in the cryptocurrency space. While it's possible that the token will bounce back from this week's sell-offs and surge to new valuation highs, investors should understand that investing in the token comes with a very high amount of risk.

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Keith Noonan 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.