On Tuesday, Tesla‘s CEO Elon Musk introduced that he would eat a McDonald’s Glad Meal on TV if the restaurant chain accepted Dogecoin (CRYPTO:DOGE) as fee. The tweet is the most recent of the billionaire’s many makes an attempt to affect the worth of Dogecoin, and it despatched the belongings valuation up 8% for a couple of hours earlier than these beneficial properties have been promptly erased.
Whereas Elon Musk has historically influenced cryptocurrency markets, his energy appears to be waning as traders begin prioritizing fundamentals over baseless hype. Let’s discover why Elon Musk cannot cease Dogecoin’s relentless crash.
1. Dogecoin faces competitors from different meme cash
Cryptocurrency prices are slumping, with the market’s complete valuation down 45% from its peak of $2.9 trillion reached in early November. However Dogecoin’s bother began a lot prior to that. The asset reached its all-time excessive of $0.74 in Might and is now down by a jaw-dropping 81% to $0.14 at writing.
The crash might be as a consequence of competitors.
Dogecoin is not the only meme coin on the town. And Musk’s makes an attempt to market it have spawned one other technology of copycat belongings rigorously designed to mimic its branding (the Shiba Inu breed of canine) and profit from Musk-related hype. When Musk tweeted, “My Shiba Inu pet shall be named Floki” in June (a comment presumably meant to pump Dogecoin), rival Shiba Inu token soared as an alternative — rising by over 60,000,000% by late October, in accordance with CNN.
Shiba Inu additionally gives expanded performance in comparison with Dogecoin. And as an Ethereum-based asset, it’s programmable, with builders claiming to be engaged on a metaverse idea known as Shiberse to supply an “immersive expertise” for its customers.
2. Dogecoin is a poor retailer of worth
Dogecoin’s issues do not cease with its restricted use-cases. The coin additionally has some troubling options that stop it from functioning nicely as a retailer of worth. Based on coinmarketcap.com, the provision of Dogecoin at the moment stands at roughly 133 billion and is designed to extend by 5 billion yearly — ceaselessly. Musk believes the inflation is nice as a result of it “encourages folks to spend.” However it’s dangerous information for traders.
Whereas cryptocurrency is gaining mainstream acceptance, it’s not broadly utilized in commerce due to volatility. Accepting Dogecoin would expose retailers to excessive change price danger. And whereas some shall be keen to tolerate this uncertainty in a bull market, it turns into a uncooked deal when costs are collapsing. With that in thoughts, It is fairly clear why McDonald’s hasn’t taken Musk up on his supply to simply accept Dogecoin.
Wager on fundamentals — not hype
Dogecoin demonstrates how unsustainable hype is for propping up asset value valuations. Whereas Musk’s pumping was initially very efficient, it’s now falling flat as cryptocurrency market sentiment sours and traders prioritize fundamentals. Dogecoin was the primary fashionable meme coin, however competitors and poor fundamentals have despatched it to the doghouse.
This text represents the opinion of the author, who could disagree with the “official” suggestion place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis — even one among our personal — helps us all suppose critically about investing and make choices that assist us develop into smarter, happier, and richer.