Is the dead cat bounce underway for Bitcoin, Ethereum, and Dogecoin?

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Is the dead cat bounce underway for Bitcoin, Ethereum, and Dogecoin?

Posted by Chris Morris on Sunday, May 23, 2021 Under: Technical Analysis

So, yeah, it’s a horrible day for cryptocurrency investors. Every major digital currency—from Bitcoin to Dogecoin—is down a staggering amount as China has widened its crackdown on cryptos. (So, for that matter, is Wall Street.) But virtually all of them are also already seeing some sort of recovery.

The question is, are investors (perhaps the HODLers who are the most enthusiastic evangelists for crypto) buying on the low to send their crypto of choice higher? Or is this a dead cat bounce?

The term dead cat bounce, used to describe a short-lived recovery from a prolonged decline, always pops up when you see a small rally after a downward trend. And all major cryptos have seen them at one point or another. Bitcoin, for example, saw several in 2018, as prices fell from $13,4349 at the start of the year to just over $3,800 at the end. And Ethereum saw a big one in April of that same year, with prices nearly doubling from $383 to $687 before falling to $139 by Dec. 31.

Whether it’s a bounce or the start of a comeback, here’s what’s certain as of 11:15 a.m. ET: Bitcoin has regained over $5,000 in value from the lows it hit at 9:10 a.m. ET, according to Coindesk. Ethereum is up $534. And Dogecoin has rebounded from 22 cents to 37 cents.

Other cryptos are following the same pattern: Cardano, XRP, Litecoin, and Maker have all seen bounces since just after 9 a.m. ET.

Bulls, however, could ask whether the cat has already bounced. Bitcoin’s drop in late April, from $63,000 to $50,000 was followed by a nine-day surge, but it has been falling fairly steadily since then. Dogecoin hit its peaks on May 7, then fell, except for a short rally on May 13 and May 14.

Or, of course, this could just be a bump in the road for cryptocurrencies.

The problem, of course, is it’s hard to peg a dead cat bounce when you’re in the middle of it. And in an investment field that’s as volatile as cryptocurrencies, it’s even harder. It’s a pattern that’s born from arbitrary market speculation and trading activity—and there aren’t many investments more arbitrary than cryptocurrencies.