Dogecoin has seen an 11% decline over the past week, but this decline may not continue as DOGE is now just above a major support block on the chain.
Dogecoin is now just above an important demand zone in the chain
This is evident from data from the market information platform InHetBlokDOGE is currently above a zone of significant demand in the chain. In on-chain analysis, “demand zones” refer to price ranges in which many investors purchase their coins.
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These zones are determined using blockchain data; the average price at which an address receives deposits is considered its cost basis. Below is a graph showing how Dogecoin price levels are close to current ones based on the number of addresses that share their cost base with them.
In the graph, the size of the dots corresponds to the number of addresses that obtained their coins within the given range. It seems that the range of $0.096 to $0.139 currently appears to be the largest Dogecoin price range in terms of this metric.
More specifically, 409,330 addresses have acquired a total of 45 billion DOGE within this range. What is the relevance of this demand zone, or any other for that matter?
In general, cost basis is an important level for any investor, so it is possible that he or she will show a reaction when the spot price of the cryptocurrency retests it.
A few investors showing this reaction would obviously be irrelevant to the broader market. But if many of them share their cost base within the same narrow range, a retest could trigger a big reaction that would cause the price to feel the effects.
In the demand zone around the average price of $0.115, many addresses bought their coins there, so the retest could be of great importance for the memecoin.
Since the current Dogecoin price is above this range, these investors who bought within this range would make some profit. Historically, such demand zones below the price have acted as support points for the cryptocurrency.
This is because investor psychology tends to work so that these holders who were making profits before the retest may believe that the price would rise again so they might decide to buy more of the asset.
On the other hand, investors who are in the red before the retest may increase the cryptocurrency’s resistance as they sell out of fear that the price will fall again. “On the upside, DOGE may face resistance around the $0.16 level, where 20 billion DOGE is currently held at a loss,” IntoTheBlock notes.
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It remains to be seen whether the on-chain demand zone below would help stop the memecoin’s decline if the price drops enough to test it again.
DOGE Award
The past week has been a bad time for Dogecoin investors as the asset’s price crashed by around 11%. After this drawdown, DOGE is now trading around $0.142.
Featured image from iStock.com, IntoTheBlock.com, chart from TradingView.com