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Baby Doge Price Surges After an Elon Musk Tweet: Is its Tech Worthy of Investing?

Baby Doge Price Surges After an Elon Musk Tweet: Is its Tech Worthy of Investing?

The sudden and drastic jump in fortunes of Baby Doge sheds light on the market volatility of unspecific cryptocurrencies that may not have a proper framework, and that is important for you to know.

Baby Doge has now joined the Dogecoin bandwagon, in a list of small and seemingly inconsequential cryptocurrencies suddenly shooting up in value – thanks to one Elon Musk. The latter took to Twitter yesterday and posted a take on the Baby Shark song – with the Baby Doge theme laid on top. This sent the Baby Doge cryptocurrency’s price on the biggest price hike rally that it has seen till date. However, many were quick to point out the volatility around prices of small cryptocurrencies, as well as why investing in such coins may not be a great idea.

The rise of Baby Doge

In the morning of July 1, Baby Doge traded at around Rs 0.000000063612. Through the day, after Musk’s tweet, the price of the coin shot up to about 1.4x to hit Rs 0.000000155717. This was the highest ever price in Baby Doge’s short existence, after it rose 8x in one month since its debut back in June. However, as soon as Baby Doge’s price started increasing and reports started flowing in basis Musk’s tweet and the crypto’s prices, the coin also started seeing a fall in its prices.

At the time of writing, Baby Doge is priced at Rs 0.000000136251 – down 12.5 percent from its peak yesterday. The movement is in line with market reports that suggest that there will be plenty of market movement and volatility in the price of Baby Doge, especially as a result of Musk’s tweet. Given the volatility, some may even consider this to be a quick, brief way to make money.


But, should you really invest in it?

Among multiple factors that experts will recommend you to check before investing in a cryptocurrency, are two factors – one, the use case and objective target of a cryptocurrency, and two, the daily trade volume and market cap of a coin, paired with the total number of coins in circulation. The two factors, while not being exhaustive, can still potentially give users an indication of whether a cryptocurrency is even worth investing.

Taking the first point, Baby Doge faces its first red flag. It is, as per present knowledge, a meme coin created as a joke – based on another meme coin created as a joke. Musk’s earlier favourite, Dogecoin, went on a record rally some time ago based on the SpaceX and Tesla chief urging people to invest in Dogecoin – going even as far as saying that Dogecoin “is the future.”

However, such rallies based on the words of a single person do not have any equity or value linked to any tangible resource, and as a result, makes for the worst kind of investment since it leaves the door open for practically endless volatility. While one can potentially make a windfall, they can lose it all too, in a matter of minutes. Given that Baby Doge has even smaller numbers, its volatility factor is even higher.

Key factors behind investment-worthy cryptocurrencies

Considering the market cap and circulation figures with reference to Bitcoin, the largest cryptocurrency in the market right now, Baby Doge has 420 quadrillion coins in circulation, which is 20 billion times the number of Bitcoins in circulation right now (21 million). This vast number of coins already creates massive value dilution, and Baby Doge now reports a fully diluted value of Rs 5,594 crore.

The fully diluted value of a cryptocurrency represents its market cap, if the coin was in full circulation. At the moment, public cryptocurrency indices and databases such as CoinGecko have no data on Baby Doge’s circulating supply, but even with that, the potential market cap of the coin offers no data to an investor about whether the coin is undervalued. It also marks a meagre 0.12 percent of the market cap of Bitcoin.

Even considering smaller but legitimate cryptocurrencies such as Chia, Cardano and the likes, Baby Doge is infinitesimally smaller, which raises further questions regarding its stability. Being a meme coin, it is neither listed in any major coin index for open trading, and nor does it offer a whitepaper. In comparison, viable coins offer both. Furthermore, in terms of value, Cardano reports present market cap of Rs 3.1 lakh crore (6.7 percent of Bitcoin) with 45 billion coins in circulation.

While coins like Chia have smaller market caps at Rs 2,115 crore, as well as fairly fluctuating prices and limited daily trading volumes, they have a specific, viable and valuable end-user use case. For instance, Chia offers a proof of time crypto mining experience to use expansive cloud storage to bring more coins to circulation, taking on the objective of solving the environmental impact of proof of work cryptocurrencies such as the orthodox Bitcoin and Ethereum.

The latter two have massive real world impacts as well. Bitcoin, for instance, has long been billed as a viable hedge to negate gold price inflation due to the latter’s decreasing availability. The Ether blockchain network, meanwhile, has emerged as a key instrument of decentralised financial and operational tools, commonly referred as DeFi.

Given that Baby Doge has none of the above factors going for it, putting your faith and money in a meme coin based on the words of Musk may not be the most prudent action to take.

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first published:July 02, 2021, 16:35 IST