2021-05-08 13:00:43

Elon Musk hyped up Dogecoin but Michigan investors still call the meme-inspired crypto a gamble

In the age of the Internet, memes have become currency and billionaires have become influencers. Dogecoin was born out of a joke, but with Elon Musk’s endorsement the value of the cryptocurrency could mean real success or failure for its investors.

Dogecoin originated in 2013 with the iconic Shiba Inu as its mascot. After the SpaceX and Telsa CEO started tweeting about the cryptocurrency, the stocks skyrocketed with a 12,000% increase since the beginning of 2021.

Social media is abuzz about Musk’s Saturday Night Live appearance and speculations are circling that he could make reference to Dogecoin and pump the stock even higher.

While young investors are excited about the potential to get rick quick, Matthew Roling, a Wayne State University adjunct professor of finance, is worried the inflated hype will end in deflated bank accounts.

“It makes my heart cry every time I see a post about it,” he said. “I just don’t want to see people get left holding the bag here.”

Roling’s personal finance class includes lessons on cryptocurrency because it’s “captured the hearts and minds of millions” and is “frighteningly accessible” given the 24-hour online market. Roling approaches cryptocurrency with hesitancy in his classes likening it to gambling rather than a building block investment.

He’s quick to remind students that speculative bubbles have burst in the past, pointing to the dot-com and housing market crashes.

What sets cryptocurrency apart is that there is no tangible asset tied to it, Roling said. Dogecoin is a prime example of the rise of a meme stock, he said, an evolution of story stock where investors are drawn in by favorable press rather than fundamentals.

“My employer is not going to pay me in Dogecoin, CVS is not going to start accepting it,” Roling said. “The only thing that drives its value is what people think of it because, again, Dogecoin has zero utility.”

As for Musk’s influence, Roling said it’s important to remember Musk’s net worth is $151 billion and he’s also been known to be a wild card when it comes to his own investments, for example tweeting the Tesla stock price is “too high” which resulted in the share price dropping by $60.

In short, the second richest man in the world has money to play with but without the same consequences as someone paying rent, Roling said.

Even Musk himself tweeted early Friday morning, “Cryptocurrency is promising, but please invest with caution!” Dogecoin’s stock rose a couple cents as the tweet amassed thousands of retweets and likes.

“It’s okay to roll the dice, it’s okay to buy a lottery ticket, it’s okay to buy some Dogecoin,” Roling said. “You just have to size the holding in a manner that if it all becomes zero tomorrow, you’re not devastated.”

Musk’s influence hasn’t been the driving factor for all young investors, though. Arun Datta, University of Michigan alumnus and University of Texas graduate student studying business, said he invested $70 in Dogecoin as an experiment at the beginning of the year.

So far, Datta has 700% return on investment. He doesn’t plan to watch Musk’s SNL performance but he will check the stocks the next morning, he said.

“I think the reason I managed to make money off of it was because of him hyping it,” he said. “But he’s Elon. He tweets whatever he feels like tweeting, says whatever he feels like saying.”

Datta knows Musk’s unpredictable nature could make the stock drop just as easily as it could make it soar. Even so, he plans to keep his Dogecoin and ride the wave just in case, he said.

“If somehow randomly, by chance, cryptos become huge and go up to the price of Bitcoin, which probably is never going to happen, but even if it goes up to $1,000 I’ll become a millionaire out of a $70 investment,” he said. “Very speculative, but I’ll probably be holding it long-term regardless of what he says.”

Ahead of Musk’s Saturday Night Live performance, Dogecoin was 63 cents a share at 4 p.m. Friday. Cryptocurrency can be traded at any time outside of stock market hours.

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