Dogecoin’s Record Price Hike Signals Bubble

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“Big Short” investor Michael Burry recently called Dogecoin a bubble, citing enough reasons that go in favor of his prediction. First, Dogecoin is perhaps the only cryptocurrency that does not have market capitalization. It was launched in 2013 when its price was around A$5.6 billion on the stock market. Now nearly about 5 billion new Dogecoins are minted every year that have already amounted to 100 billion. 

Generally, the value of cryptocurrencies depends on how scarce the supply of that particular cryptocurrency is, and bitcoin being the scarcest cryptocurrency, has the highest value amongst all. Regarding Dogecoin, it has an unlimited supply, and therefore, Burry questioned how can a currency with such an unlimited supply ever have any value (and that too spike by more than 800% in just 24 hours on Jan 29) just after Elon Musk tweeted about Dogecoin.

 Elon Musk tweeted that Dogecoin could be the future cryptocurrency of the earth. Following this tweet, the prices crossed an all-time high.  Moreover, this sudden boost coincided with that of GameStop’s share price—which soared to 2500% last month. Dogecoin was nowhere near, creating more suspicions.

Bitcoin bull Mike Novogratz also talks in the same tone, and he also thinks Dogecoins is a bubble, and it was just created to make fun of other leading cryptocurrencies. Moreover, Dogecoin was best thought of as a cultural product instead of a financial asset and thus, its price suddenly skyrocketing seems quite unusual.

According to Mike, unsuspecting investors easily fall prey to meme investments like Dogecoin. However, he also predicted that these meme investments like Dogecoin are absolutely unsustainable, and therefore the price bubble will start to pop very soon.  As a result, naïve investors who turned to Dogecoin after the frenzy around GameStop died down will be left to face huge losses because they didn’t know when to sell their assets. Mike claims that celebrity entrepreneurs like Elon Musk could be responsible for the huge losses of investors because it was he who encouraged them to buy stocks at huge prices.

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