On Tuesday, Tesla‘s CEO Elon Musk announced that he would eat a McDonald’s Happy Meal on TV if the restaurant chain accepted Dogecoin (CRYPTO:DOGE) as payment. The tweet is the latest of the billionaire’s many attempts to influence the price of Dogecoin, and it sent the assets valuation up 8% for a few hours before those gains were promptly erased.
While Elon Musk has historically influenced cryptocurrency markets, his power seems to be waning as investors start prioritizing fundamentals over baseless hype. Let’s explore why Elon Musk can’t stop Dogecoin’s relentless crash.
1. Dogecoin faces competition from other meme coins
Cryptocurrency prices are slumping, with the market’s total valuation down 45% from its peak of $2.9 trillion reached in early November. But Dogecoin’s trouble started much sooner than that. The asset reached its all-time high of $0.74 in May and is now down by a jaw-dropping 81% to $0.14 at writing.
The crash could be due to competition.
Image source: Getty Images.
Dogecoin is no longer the only meme coin in town. And Musk’s attempts to promote it have spawned another generation of copycat assets carefully designed to imitate its branding (the Shiba Inu breed of dog) and benefit from Musk-related hype. When Musk tweeted, “My Shiba Inu puppy will be named Floki” in June (a remark presumably meant to pump Dogecoin), rival Shiba Inu token soared instead — rising by over 60,000,000% by late October, according to CNN.
Shiba Inu also offers expanded functionality compared to Dogecoin. And as an Ethereum-based asset, it is programmable, with developers claiming to be working on a metaverse concept called Shiberse to offer an “immersive experience” for its users.
2. Dogecoin is a poor store of value
Dogecoin’s problems don’t stop with its limited use-cases. The coin also has some troubling features that prevent it from functioning well as a store of value. According to coinmarketcap.com, the supply of Dogecoin currently stands at roughly 133 billion and is designed to increase by 5 billion annually — forever. Musk believes the inflation is good because it “encourages people to spend.” But it’s bad news for investors.
While cryptocurrency is gaining mainstream acceptance, it is not widely used in commerce because of volatility. Accepting Dogecoin would expose merchants to extreme exchange rate risk. And while some will be willing to tolerate this uncertainty in a bull market, it becomes a raw deal when prices are collapsing. With that in mind, It’s pretty clear why McDonald’s hasn’t taken Musk up on his offer to accept Dogecoin.
Bet on fundamentals — not hype
Dogecoin demonstrates how unsustainable hype is for propping up asset price valuations. While Musk’s pumping was initially very effective, it is now falling flat as cryptocurrency market sentiment sours and investors prioritize fundamentals. Dogecoin was the first popular meme coin, but competition and poor fundamentals have sent it to the doghouse.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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