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During an online press conference on Wednesday, United States Federal Reserve Chairman, Jerome Powell was asked by Yahoo Finance reporter Brian Cheung if recent market events such as Dogecoin(DOGE) massive rally suggest a relationship between low rates and easier monetary policy towards such things. Cheung also asked there are any concerns about financial stability, following such wild price swings.
“Some of the asset prices are high. You are seeing things in the capital markets that are a bit frothy. That’s a fact,” the Fed chair responded. “I won’t say it has nothing to do with monetary policy, but it also has a tremendous amount to do with vaccination and reopening of the economy.”
“Froth is a term often used and suggests that the price of an asset is not reflecting its intrinsic value. This kind of overvaluation where the asset price exceeds its objective value could then be a precursor to a market bubble bursting. Often, in an attempt to push an asset beyond its reasonable worth, this could lead to a market crash, something similar to what we have seen in 2018 when crypto crashed. something that long-time crypto enthusiasts know well given the early 2018 market crashed.
There are a couple of contributors to the rise of assets as Dogecoin but also Gamestop according to Powell.
It is the chairman’s view that the United States’ monetary policy, including low interest rates and recent COVID-19 stimulus payments, has played a part. Nonetheless, investment also got encouraged by people getting their COVID vaccines and more generally, people returning to their pre-pandemic habits and activities.
Dogecoin’s value has skyrocketed from less than $0.01 per coin in January up to a peak price just under $0.45 earlier this month. The surge was mainly driven by Tesla CEO Elon Musk’s intermittent tweets, consistently causing the asset’s price to jump. To a lesser extent, it can be said that Mark Cuban with his Dallas Mavericks accepting Dogecoin for payments also contributed to the popularity of the goofy meme coin.
The frothiness of Dogecoin has its limits though. A social media-led effort to push DOGE’s value to $1 or more on #Dogeday, April 20, failed. Instead of going “to the moon”, it dropped almost 25% in a day’s time.
DOGE is something to keep a close eye on in the next week. Elon Musk recently announced he will be hosting the May 8 Saturday Night Live, dubbing himself as the “Dogefather“.