Dogecoin Price Prediction: Outlook For The Rest Of 2021 And 2022 (Cryptocurrency:DOGE-USD) – Seeking Alpha

Dogecoin (DOGE-USD) surged earlier this year, powered by Robinhood traders piling in, egged on by YouTube and TikTok. A quick glance at Dogecoin videos on YouTube confirmed that the majority of the titles are still in all caps–and that there are still plenty of moons and rocket ships in the video thumbnails.
The price hasn’t hit the $1.00 that the TikTok prophets called for, but a few early people made a ton of money. A lot of them were celebrities or social media influencers, while anecdotally, more of the losers of money in Dogecoin were average Joes.
The action in Dogecoin illustrates an economic concept called “bezzle” that is making the rounds in public discussion right now (I’ve had multiple people send me this piece from the Carnegie Endowment). Bezzle was coined by John Kenneth Galbraith, a Canadian-American economist who advised the Kennedy Administration. He’s since passed away, but he developed a very intuitive concept that explains some of the quirks of the market economy.
Put simply, bezzle is fake value. The term is derived from the crime of embezzlement, which is regarded as an interesting crime to economists because as long as the embezzlement is undiscovered, the same money exists twice. The embezzler is free to spend the taken money, while the counterparty they’re stealing from doesn’t realize the money is gone yet, so they spend freely as well. At some point, the illusion vanishes, and the extra money is forever gone.
A broader meaning of bezzle, which I personally refer to as froth, refers to anything where the market value exceeds the actual value of the underlying asset. Charlie Munger coined the term “functionally-equivalent bezzle,” in the 1990s, referring to companies that sold near-worthless stock to investors. For example, AMC Entertainment (AMC) loses billions every year and has no plausible prospects to reverse this. After the meme stock surge, the company has recently issued billions in stock to offset this, pocketing cold, hard cash. The problem is that it’s widely known (and disclosed in AMC’s secondary offering documents) that the stock has no long-term economic value anywhere near its market price, meaning that the money that the company and old set of owners made from selling shares is currently being double-counted. The original owners, such as China-based Wanda Group, much of the company’s management, and institutional investors sold out for actual cash, while the new retail investor owners don’t yet understand that their asset has little to no economic value. Buying an altcoin that your favorite pornstar recommends on Twitter? Sounds like bezzle to me, not necessarily fraud, but at least meeting Munger’s definition of functionally-equivalent bezzle.
There’s an interesting question you can ask about asset bubbles, which is to ask where the money goes in a market crash. Sometimes the answer is that people are forced to sell at artificially low prices, but in the case of drawn-out bear markets like 2000-2002 and 2007-2009, the answer is that the value may have never existed in the first place.
Bezzle can last for years–sometimes decades in rare cases. British economist John Kay noted that Enron, for example, cooked its books for 10 years and became one of the most valuable companies in the world, and it was only when the economic cycle turned down and when cash in the system got scarce that it was discovered that they weren’t for real. To this point, Bernie Madoff and his investors spent money for decades on the assumption that their wealth was increasing, but it was all a lie.
Banks in the 2000s wrote more mortgages than could be paid by people with legitimate income to pay them, then wrote them down later. Now, many of those same people are turning to Dogecoin and other altcoins as the answer to their need for income. It could be argued that the US dollar itself has bezzle embedded into it since the US government won’t be able to continue to run massive deficits without prices for imports eventually shooting up. Another debate is whether the unfunded portion (~20 percent) of Social Security and Medicare costs also constitutes bezzle.
Millions of Americans received stimulus checks in 2021, and a lot of it went into Robinhood, and specifically into crypto. The people I know who got into Dogecoin early sold for substantial profits, and many of the people I know who got into Dogecoin late have substantial losses, buying around the same time the early adopters sold. Many of these buyers are still holding out hope. So why do I think DOGE is froth and isn’t like investing in the next Apple (AAPL)? Here’s why.
I wouldn’t put any money into Dogecoin, and if I did have money in DOGE I would sell. The rapid rise in the price of Dogecoin this spring caught a lot of people by surprise this spring, including me. Sure, I missed out, but I’m not any poorer for it. If you’re sinking money at today’s prices into Dogecoin, you very well could be made much poorer by your decision, given the unsatisfactory economics behind the coin and the lack of efficient ways to trade it. If I have to hang a price target on Dogecoin, I would say I’d expect it to trade to around 5 cents over the next 1-2 years. Dogecoin is probably always going to have some value as a collectible–I don’t ever see it going to zero, but the economic value of the coin is negligible.
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Disclosure: I/we have a beneficial long position in the shares of BTC-USD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.