Elon Musk, Snoop Dogg and Mark Cuban love Dogecoin. Should you? How to stay safe when investing in cryptocurrency
Billionaires, celebrities and athletes can’t get enough of the crypto craze.
Tesla CEO Elon Musk thinks digital currencies are here to stay. So does investor and Dallas Mavericks owner Mark Cuban.
They’re not alone. Rapper Snoop Dogg jumped on the Dogecoin bandwagon along with Kiss singer Gene Simmons and restaurateur Guy Fieri after the meme-inspired cryptocurrency surged a whopping 11,000% this year.
Athletes are also flocking to bigger cryptos like bitcoin and ether following a record-breaking rally. Trevor Lawrence, the No. 1 NFL draft pick in 2021, partnered with a global cryptocurrency investment app called Blockfolio and plans to place his signing bonus into an account with the company.
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But it’s no longer just enthusiasts and public figures who are dabbling with digital coins.
Amateurs like Earl S. Bell of Brooklyn, New York, are jumping in. He says he’s been an investor for a decade and started to put his money in different cryptocurrencies about a year ago.
“I saw crypto as freedom. In the COVID era, I wasn’t able to get enough work,” says Bell, an architect by trade. “My future plans are to come out with my own coin.”
Bell says his plan would include creating bank-like safes for cryptocurrency investors to store their crypto wallets.
So with all the hype around cryptocurrencies like Dogecoin, bitcoin and ether, should you jump in on the mania, too? It depends on how much you can tolerate extreme volatility in your portfolio.
Cryptocurrencies are digital currency created and exchanged over a decentralized computer network where transactions are secured and verified through coding.
Bitcoin, which launched in 2009, is the original and the world’s most popular crypto. It was designed as an alternative to government money and is based on blockchain technology, which acts as a public ledger of transactions.
Bitcoin’s value depends on investors’ confidence in it because there is no central authority governing supply. It has mainly been used for speculation by traders rather than for payments.
Prices for cryptocurrencies are based on supply and demand. That means the rate at which a cryptocurrency can be exchanged for another currency can fluctuate vastly since the design of many cryptocurrencies ensures a high degree of scarcity.
Bitcoin bulls have called it a “store of value” – which has historically been reserved for safe-haven investments like gold – and argue that it’s a good investment to hedge against inflation.
That’s because there’s not an unlimited supply of bitcoin. In fact, there are only 21 million bitcoins that can be mined, and about 18 million have been mined so far. Bitcoin mining is the process that creates cryptocurrency. It is resource-intensive in an effort to control the number of bitcoins in circulation.
Enthusiasm around Bitcoin spurred other digital tokens.
Ethereum, which launched in 2015, is a blockchain-based software platform that is primarily used to support ether, the world’s second-largest cryptocurrency by market value at more than $400 billion. It eclipsed $3,900 on Saturday to touch another all-time high, rising more than 400% in 2021.
Ether supply, however, isn’t capped and new tokens are created through a similar mining process as bitcoin.
The “memecoin” Dogecoin was created in 2013 as a joke poking fun at the surge in other digital coins. Dogecoin was inspired by the popular Doge meme, which is an image of a Shiba Inu dog staring sideways at the camera with raised eyebrows.
The latest surge has pushed Dogecoin’s market capitalization to $70 billion, which means it’s valued more highly than Moderna, Ford and Twitter. In 2021, it has surged from less than half a penny to more than 50 cents.
It’s also worth more than SpaceX, Musk’s privately held rocket company, which is valued at $74 billion, according to SEC filings.
Cryptocurrencies aren’t a currency supported by governments, and they aren’t a piece of a company, like a stock. But the factors that determine their underlying worth are unclear, experts say.
For those who invest in a stock, the price of a share should be the present value or future profit that a company is going to generate, according to Itay Goldstein, a professor of finance and economics at the University of Pennsylvania’s Wharton School of Business.
When it comes to cryptocurrencies, it’s really up in the air, he says.
“No one can tell you whether bitcoin priced at $50,000, $60,000, or $70,000 is too much or too little,” says Goldstein. “So as a result, it takes on a life of its own. … People start to believe that’s what it should be and then it crashes with no clear guidance on where it should stop.”
Cuban is one of the core investors on NBC’s reality show “Shark Tank.” He told USA TODAY he’s a big believer and investor in cryptocurrency.
Cuban says he first started investing in cryptocurrencies in 2017 and added to his investments last year and this year. He declined to say how much he has invested, except that it’s “not enough.”