Jerome Powell, the current Chairman of the US Federal Reserve, stated on a particular streaming press conference last Wednesday that the capital markets are turning a bit “frothy,” mainly due to the investors’ continual support and endorsement of the so-called “meme currencies,” such as Dogecoin (DOGE). While he thinks that such is the principal reason for the market turning frothy, Powell also admitted that the easy-money policy of central banks contributed significantly to it.
In the investment industry, the term “froth” implies that a particular asset is no longer coinciding with its actual intrinsic value. This investment term is usually used when the price of the asset in question surges past its objective value – much like what DOGE is currently doing. As many fear it to be, froth can be the trigger that bursts the market bubble, just like when it did three years wherein the crypto market crashed hard. Notably, froth could also point out to the act of overconfident investors trying to elevate an asset’s value way past its sensible worth.
Powell believes that the US’ current monetary policy, particularly the recent rounds of COVID-19 stimulus and underlying low-interest rates, has played a significant role for such assets to jump in value. That may be, the Fed Chair seemingly remains optimistic that the US economy would recover swiftly, stating that he sees a renewed market participation from the people trying to get vaccinated to immediately return from their pre-pandemic activities and spending habits.
Froth or not, investors see highly of DOGE evidenced by its market value jumping by more than 6,000% this year alone.