2021-05-07 19:20:00

How Dogecoin Is Creating a Frenzy for the Next Big Cryptocurrency—and Why Experts Advise Caution

Dogecoin, a cryptocurrency that was created as a joke, has risen in price by more than 12,000% and hit a record 69 cents per token this week. Bitcoin climbed briefly to over $60,000 apiece last month, more than doubling its price since the end of 2020. These rallies are prompting individual investors to turn their attention to newer cryptocurrencies such as DigiByte, VeChain and SafeMoon in the hunt for cheaper alternatives that could be the next to skyrocket. Here’s what you need to know.

Key Takeaways
1. The rise of new digital assets is fueled, in part, by online speculation.

The trend is part of a broader investing frenzy that has also driven up prices of other assets, including stocks and silver. But much of the betting around cryptocurrency is due to chatter on the internet and a fear of missing out. That includes celebrities with large social media followings. Rapper Lil Yachty, who has five million

Twitter

followers, tweeted last month to say “told y’all [SafeMoon] was goin up,” referring to the new cryptocurrency which has rallied more than 20,000% since its launch last March.

2. Investors see new cryptocurrencies as a cheap investment with potential for big payoff.

Stephen Roach, a 39-year-old cinematographer in London, said his roughly $950 investment in VeChain, a cryptocurrency project from China, is now worth $71,000. (VeChain’s price has risen more than 900% this year, giving it a market value of about $13.3 billion.) Part of the appeal of the cryptocurrency was its relative cheapness, Mr. Roach said. “It never needs to get to $50,000-a-coin to be life-changing for you because it’s under a dollar. All it needs to do is get to $10.”

3. Experts warn of possible loss, fraud or taxation.

Some experts say cheap crypto could be a red flag. “Cheap doesn’t mean a bargain, it’s only a bargain if it rises. If it is cheap, it’s also potentially because it is worthless,” said Susannah Streeter, senior investment and markets analyst at U.K. asset manager and stockbroker Hargreaves Lansdown. Many of these digital assets also have low liquidity, said Charles Hepworth, an investment director at GAM Investments—meaning if sentiment turns for a cryptocurrency, investors won’t be able to sell it or get their money back. Another potential risk is fraud, as cryptocurrencies already lack oversight by U.S. regulators.

4. Previous “alt-coins” have burned out quickly.

Smaller cryptocurrencies tend to be even more volatile than bitcoin, whose price frequently jumps up or down over 10% in a single trading session. This can lead to steep and fast losses for investors. A previous generation of these smaller “altcoins,” such as litecoin and PinkDog, rose in 2017. Many of them have failed to make money for their backers, or collapsed entirely.

Read the original article by Caitlin Ostroff here.

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