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The Future of Dogecoin Is In the Hands of Elon Musk

Be it any asset class in the world, I have always followed the value investing approach. In the world of meme coins and meme stocks, value investors seem to be bit out of place. I do agree that investment strategies need to be dynamic. However, I am still struggling to find a good reason to consider exposure to meme coins like Dogecoin (CCC:DOGE-USD).

A close-up shot of Tesla (TSLA) CEO Elon Musk.
Source: vasilis asvestas / Shutterstock.com

Dogecoin has surged by over 12,200% in the last 12 months. And these returns are at a current price of nearly 31 cents. At the beginning of May, Dogecoin touched a high of 73 cents.

Even at current levels, Dogecoin has a market capitalization of $40 billion. Ford (NYSE:F) currently trades at a market capitalization of $59 billion. Therefore, when Dogecoin was trading near all-time highs, the altcoin had a market capitalization that was higher than F stock. This is an example of the level of frenzy.

Dogecoin Lacks a Strong Investment Thesis

If I do ask a Dogecoin investor on the reasons for the rally, the most probable answer is the backing by Elon Musk. It’s a series of tweets over time that spurred Dogecoin to all-time highs. Of course, the CEO of Tesla (NASDAQ:TSLA) claims to be holding Dogecoin. However, that’s not reason enough to consider exposure to a meme coin.

Dogecoin investors will also talk about the possibility of wider adoption of the cryptocurrency. I would rather be invested in Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD) if I am bullish on wider adoption of cryptocurrencies.

If I had to buy an altcoin, I would rather be invested in Polygon (CCC:MATIC-USD) than Dogecoin. Polygon is a non-speculative altcoin that addresses the challenges related to high fees and lower transaction per second in Ethereum. With the growth of decentralized finance, Polygon seems to have a bright future.

My only point is that there are possibly dozens of altcoins that have strong use cases. I don’t find a reason to be invested in Dogecoin, which seems to depend on Musk for survival.

Cryptocurrencies are in a Zone of Uncertainty

In the last rally, Bitcoin surged to a high of $64,800. A sharp correction followed and Bitcoin briefly slipped to near $30,000. It goes without saying that if Bitcoin and Ethereum decline, altcoins will have a sharper correction.

There were two reasons for the big correction. First and foremost, China’s clampdown on cryptocurrencies impacted sentiments. Further, Musk opined that Bitcoin was not really environment friendly. Considering the significant electricity consumption.

Last month, U.S. Treasury also called for stricter cryptocurrency compliance. The Treasury believes that cryptocurrencies pose tax evasion risk. It seems very likely that the U.S. will regulate cryptocurrencies in the foreseeable future.

With the decentralized world facing the risk of regulations, cryptocurrencies are currently in an uncertain zone. In these times, it might not be a good idea to invest in a meme coin. I believe that further correction might be coming for Dogecoin as a current market capitalization of $40 billion looks unreasonable.

Concluding Views

Bitcoin has also been talked about as an inflation hedge and a store of value. That’s understandable to some extent with the cryptocurrency having a limited supply of 21 million.

On the other hand, Dogecoin has a circulating supply of 130 billion with no upper limited to the amount of coin that can be mined. Clearly, the altcoin is significantly inflationary in nature and might not serve as a store of value.

Overall, it seems that the only hope for Dogecoin are tweets from Musk. One hope for the altcoin is a possible new that Tesla will accept Dogecoin as a payment method.

Therefore, investors can still consider some speculative exposure. However, it might be too risky to go overboard on this cryptocurrency.

On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.


Article printed from InvestorPlace Media, https://investorplace.com/2021/06/the-future-of-dogecoin-is-in-the-hands-of-elon-musk/.

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