When it comes to money, who would you believe – celebrity memes or experts who crunch numbers all day and know how money works? There is huge social media influence in the stock market, and the cryptocurrency hype only means a crypto bubble, which will burst once the frenzy cools down.
It all started as a joke in 2013. Two software engineers coded Dogecoin as a satire of the growth of alternative coins and the Internet Doge meme. But they didn’t know that after eight years their joke would grow to a market cap of US $ 51 billion. And the reason for this rally, it was the Redditors who shocked the stock market with the Gamestop short press. To add to the humor, Dogecoin barges on memes Elon Musk and other celebrities are posting on Twitter.
In this article, I’ll explain why crypto prices are rising – and why I think this crypto bubble will burst.
Why are crypto prices rising?
Cryptocurrency is like digital gold, which must be mined. It has all the characteristics of gold. In a lifetime, you can only mine 21 million Bitcoins, which makes it rare like gold. Initially, it is easy to mine. But the more you mine, the harder it becomes to get even one piece. Mining needs high-performance computers.
In ancient times, gold coins were used as a currency for trading goods. But today it just stays in the safe and its price goes up. Cryptocurrency has become something like this.
People buy cryptocurrency in the hope that others will also buy and increase its price and then sell the crypto. Freetrade analyst David Kimberley said: “But when everyone does that, the bubble has to finally burst and you will be left out if you don’t get out on time.” People invest in crypto to get rich quick. But there are no shortcuts to getting rich.
When will the crypto bubble burst?
As with any investment, few players hold a large pile of cryptocurrency. Let’s go back to November 2020. Bitcoin prices started to rise when hedge fund investors bought it. Bitcoin prices doubled in February when Elon Musk revealed You’re here Investment of 1.5 billion US dollars.
Imagine the prices going down when one or two of these giants start to wind up. It is impossible to say when this will happen. But when it does, retail investors won’t even have the option of exiting at the right price. Remember the Gamestop mania. Robinhood banned retail traders from buying, and many lost their money. This herd mentality only enriches the one at the forefront. Those who are last are the ones who lose.
It is possible that these giants will liquidate their cryptocurrency when the stimulus money stops and the economy recovers. This is because investors turn to alternative investments like gold and now cryptocurrency when interest rates are close to zero and inflation reduces the value of paper money. When the government stops injecting stimulus money and increases interest rates, the value of paper money goes up and people liquidate their alternative investment.
Better hedging against inflation
There are better ways to hedge against inflation than to risk your money on a speculative cryptocurrency. Invest in essential and oil-related stocks like Enbridge (TSX: ENB) (NYSE: ENB) can give you at least 7% dividend income. Oil and natural gas are much more useful than gold and crypto. From planes to cars to factories, everyone uses fuel to power engines.
In addition, oil is a scarce resource. Even if the energy industry switches to renewables, it will take almost 20 years for renewables to make a significant difference in demand for oil. The pandemic has impacted travel, reducing demand for oil. As a result, Enbridge shares are trading at a 17% discount from their pre-pandemic level.
Pipeline operator Enbridge’s cash flow is stable as reduced demand for oil is partially offset by increased demand for natural gas. In the worst case, it will not increase its dividend. A year after the start of the pandemic, the company still managed to increase its 2021 dividend by 3%. In addition, the stock is recovering to pre-pandemic levels.
The message From Bitcoin to Dogecoin: Experts Warn of Crypto Bubble Explosion first appeared on The Motley Fool Canada.
Silly contributor Puja Tayal has no position in any of the listed securities. David Gardner owns shares of GameStop and Tesla. Tom gardner owns shares of Tesla and Twitter. The Motley Fool owns shares and recommends Enbridge, Tesla and Twitter.
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