GameStop all over again. Investors will get burned in Dogecoin frenzy
The Dogecoin (DOGE) cryptocurrency has become the new GameStop, with frenzied trading potentially delivering a bloody nose to novice investors, according to Nigel Green, CEO at financial advisory and FinTech organisation deVere Group.
Earlier this year, Dogecoin’s value rocketed after billionaire Elon Musk, rapper Snoop Dogg and Kiss bassist Gene Simmons tweeted about it.
And its market capitalisation hit almost $45 billion on Friday, with its price having risen by 400% in the last seven days.
The memecoin was created in 2013 as a joke, poking fun at the rise of established digital assets such as Bitcoin.
Dogecoin was inspired by the popular Doge meme, which offers the image of a Shiba Inu looking sideways at the camera with raised eyebrows.
GameStop, an out-of-favour bricks and mortar video game retailer, rocked Wall Street in January when a group of small-scale, mainly inexperienced investors, led by a frenzy on Reddit, sparked a historic short squeeze where they drove up its stock prices.
“This week, since Reddit lifted its ban on the discussion of three cryptocurrencies - Bitcoin, Ethereum and Dogecoin - activist investors and also some celebrity investors on social media have been urging others to invest their cash into Dogecoin – their new pet populist bandwagon,” Green comments.
“In the same way that the GameStop frenzy was pitched as a battle-play of ‘Wall Street versus The Little Guy’, Dogecoin is being pitched as a battle-play against the well-established crypto giants like Bitcoin.”
“But this is not typically the way reasoned, savvy investors should strategise to create and build their portfolios in order to reach their financial goals.”
Green expects many novice retail investors to get burned in the Dogecoin frenzy – in the same way they did with GameStop.
He says that investors should avoid being drawn into the hysteria driven by social media and look at the fundamentals of the different cryptocurrencies.
“It’s very hard to compare Dogecoin with the likes of Bitcoin, which runs on ground-breaking tech and has a limited supply giving it scarcity value, amongst other valuable attributes.”
“And Ethereum, which is solving real world issues and providing in-demand business solutions. For these reasons, amongst others, they are attracting huge institutional investment.”
“Whereas we can assume that many people have been buying Dogecoin, not because they think it has any real value, but because they hope others will get FOMO, jack the price up, and then they can sell off and make a quick profit.”
Green concludes with a message he gave in January at the height of the GameStop mania.
“If you do want the thrill or novelty of chasing big gains led by activists on social media, you really should make sure that you have a sound, diversified, long-term financial strategy established in place first.”
