Why Dogecoin immediately surged 25% after Elon Musk tweeted about it

Elon Musk is tweeting about Dogecoin again as DOGE rallies 25% on Binance.

The price of Dogecoin (DOGE) rallied by roughly 25% on Dec. 20 as Tesla CEO Elon Musk once again drew attention to the meme-inspired cryptocurrency. 

Elon Musk and his enthusiasm toward Dogecoin is a long-running meme. Every once in a while, Musk likes to tweet about Bitcoin (BTC) and the crypto market. When he does, the market reacts to it quite aggressively.

Musk last tweeted about Dogecoin in July 2020, when he said he foresees a “Dogecoin standard future.” At the time, DOGE rallied 14%.

The reason behind Dogecoin’s upsurge when Musk tweets is quite simple. As cryptocurrency researcher Hasu explains, “prices in this space are fueled by attention.” Hence, when there is a significant increase in attention, a low market cap cryptocurrency can increase rapidly.

Dogecoin trending on Twitter

On Dec. 20, Musk started to tweet about Bitcoin, posting several tweets about the dominant cryptocurrency.

In the midst of it, Musk tweeted “One word: Doge,” which caused a frenzy on Twitter. Dogecoin started to trend on the platform, especially as Musk changed his bio to “Former CEO of Dogecoin.”

According to data from CoinMarketCap, Dogecoin has a market capitalization of around $549 million. Compared to major cryptocurrencies, like Bitcoin, Ether (ETH) and top decentralized finance (DeFi) tokens, DOGE’s valuation is substantially lower.

Moreover, because DOGE is only the 44th largest cryptocurrency in the world, its volume and liquidity are lower than the top cryptocurrencies.

As such, when an influential figure, like Musk, talks about DOGE, the cryptocurrency often surges as the trading activity suddenly rises.

In November, other major altcoins saw a similar trend. For instance, as Cointelegraph reported, XRP surged massively as Bitcoin began to rally towards $19,000. On Coinbase, it surpassed $0.90 while hitting around $0.75 on other major exchanges.

What does DOGE’s surge indicate?

Technical analysts and traders pinpoint that the upsurge of DOGE led to the start of altcoin cycles in the past. A pseudonymous trader known as “Crypto Capo” said:

“Every altseason starts with $DOGE pumping.”

The probability of an altcoin season emerging remains high because Bitcoin faces a major resistance at $25,000 based on exchange orderbook data.

The trader also noted that Bitcoin would likely hit $25,000 first, drop to $21,000 to reclaim support, and make its run towards $30,000. The trader said:

“Potential roadmap for $BTC -$25k, then $21k-22k, then $30k Dips are for buying.”

If a scenario similar to this occurs, the largest beneficiary would likely be altcoins. Traders would seek for higher-risk plays to offset the declining volatility in the Bitcoin market.

The combination of these factors suggests that the rally of DOGE could mark the start of a new altcoin cycle in the foreseeable future.

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