Dogecoin boom is a retail phenomenon driven by Powell giving money to everybody, Novogratz says

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Dogecoin’s recent price surge has captured Wall Street’s attention. The cryptocurrency shot up more than 400% in the past week, bringing its market cap to more than $50 billion before pulling back from all-time highs on Tuesday.

The meteoric climb initially began around the time of the Reddit-fueled meme-stock trading rally, following a discussion on Reddit about making Dogecoin (DOGE-USD) the Gamestop (GME) equivalent of the crypto space.

While some investors and celebrities have jumped on the bandwagon, including endorsements from well-known names like Shark Tank investor Mark Cuban, Celebrity Chef Guy Fiere and Tesla (TSLA) CEO Elon Musk, others are urging caution. Mike Novogratz, CEO of Galaxy Digital, told Yahoo Finance on Tuesday that investors "have to be very careful" with Dogecoin.

“This is a retail phenomenon being driven by the fact that [Federal Reserve] Chair Jay Powell is giving money to everybody. There is too much money in the system," said Novogratz. “This is very much like GameStop where these meme coins tap into something in the young, new investor base and it becomes fun. It builds on momentum and they want to go after the shorts.”

“I don't think it is going to have legs because it is all retail and all of a sudden — there is nobody behind it. No institutions coming in. No strategic buyers. Nobody is working on how to make Doge part of your portfolio,” he added.

Dogecoin was created about eight years ago by programmers Jackson Palmer and Billy Markus as a joke, using a popular meme created by a Shiba Inu dog owner in Japan.

Last week, Dogecoin skyrocketed after Musk tweeted "Doge Barking at the moon.” And that wasn’t the only time Musk fueled spikes in the value of Dogecoin. Earlier this year, he tweeted "Dogecoin is the people’s crypto,” which triggered a 60% price jump in just two days.

Today, Dogecoin is one of the largest digital cryptocurrencies, reaching a market cap of more than $50 billion Tuesday. Although, Wednesday morning Dogecoin plummeted by more than 20%. Compared to crypto leader, Bitcoin (BTC-USD), Dogecoin is still just a fraction of Bitcoin's $1 trillion market cap.

The latest jump in Dogecoin has prompted some crypto investors to compare Dogecoin to Bitcoin’s recent rally. While both have recorded significant gains since the start of the year, Novogratz said it’s important to make the distinction between the two cryptocurrencies.

“It's very wrong to compare Doge to Bitcoin or the other coins. The amount of capex and opex that goes into keeping the Bitcoin network decentralized and up and running each year is immense,” added Novogratz. “Doge is a dog, no pun intended."

Seana Smith anchors Yahoo Finance Live’s 3-5 p.m. ET program. Follow her on Twitter @SeanaNSmith

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