While driving on the Washington Capital Beltway this past holiday weekend, I spotted a Lexus with a license plate that read: B1TCO1N.

It gave me flashbacks to 1999.

In an echo of that dark time, Bitcoin and its peers tumbled on Tuesday. So did the major indices.

In the morning, the Dow Jones Industrial Average shot past 26,000 for the first time, before easing back and closing in the red. Lower oil prices and mixed earnings pulled down the Dow, as well as the S&P 500 and Nasdaq.

But losses were modest. Investors still believe in the bull. How long can stocks break records? The term “melt-up” comes to mind. It means current gains are an unreliable indicator of long-term direction. Melt-ups often precede melt-downs. The dot.com bust is an example.

Doubt we’re in a tech bubble? I turn your attention to Dogecoin.

The cryptocurrency Dogecoin was launched in 2013, as a parody of Bitcoin. Doge is Japanese slang for “dog.” Dogecoin tokens feature the image of a Shiba Inu dog, an Internet meme.

Dogecoin has no mainstream commercial applications. It’s used for tipping online. Interest in Dogecoin grew through social media. The dollar value of all Dogecoins in circulation reached a high of $2 billion on January 7.

Today at market close, Dogecoin’s value was $822.6 million — for an alt-coin that started as a joke. Something is wrong here.

Dogecoin fell 29.85% on Tuesday. Bitcoin’s value also declined Tuesday, falling to $11,300 per coin, the lowest value Bitcoin has seen so far this year. Over the last 24 hours, Bitcoin has plunged more than 20%.

The blockchain bandwagon…

Cryptocurrencies are born via initial coin offerings (ICOs). There’s a new ICO almost daily. An ICO is a form of crowdfunding. CoinMarketCap lists about 1,400 types of cryptocurrencies in circulation.

Eastman Kodak (NYSE: KODK) has gotten into the act, with its own blockchain and token. Blockchains are ledgers of cryptocurrency transactions.

Eastman Kodak’s shares tripled last week after it launched KodakCoin, a system for tracking the rights and royalties of digital photography. Now Facebook (NSDQ: FB) says it might create a token.

The number of cryptocurrency millionaires is on the rise. Some are teenagers. They play video games in McMansions. They wear bejeweled Bitcoin tokens as cufflinks.

I don’t doubt that blockchains convey practical uses. But we’re starting to witness the madness of crowds. On Tuesday, the value of Bitcoin and its peers plunged on fears of greater regulatory scrutiny. Expect further declines.

It’s not just cryptocurrencies. Hyped public offerings. Dubious mergers. Increasing love for leading stocks. All signs of market froth.

Don’t sit on the bench. Stay in the game. But reduce your exposure to overpriced stocks. Let’s do the numbers.

Tuesday Market Wrap

• DJIA: -0.04% or -10.33 points to close at 25,792.86
  
• S&P 500: -0.35% or -9.82 points to close at 2,776.42
  
• Nasdaq: -0.50% or -36.57 points to close at 7,224.49
  

Tuesday’s Big Gainers

• Energizer Holdings (NYSE: ENR) +14.53%

Asset deal lifts battery maker.

• Smart & Final Stores (NYSE: SFS) +11.76%

Analyst upgrades food retailer.

• Vipshot Holdings (NYSE: VIPS) +10.54%

Tech giants invest in online retailer.

Tuesday’s Big Decliners

• Hertz Global Holdings (NYSE: HTZ) -14.93%

Car rental firm’s turnaround in doubt.

• China Southern Airlines (NYSE: ZNH) -7.53%

Passenger demand slows.

• Rite Aid (NYSE: RAD) -6.90%

Analysts bearish on drug chain.

Letters to the Editor

“Doesn’t the Federal Reserve just make things worse?” — Richard K.

In a word, no. Certain pundits love to bash the Fed. Ignore them. They have hidden agendas.

The Fed must strike a tricky balance. It tries to sustain growth without fueling inflation. Sure, it can miss the mark. But nearly 10 years ago, it saved the day.

The financial crisis of 2008-2009 was the worst deflationary event since the Great Depression. The Fed responded by opening the monetary spigots and driving down interest rates.

Memories are short. But during the fall of 2008, we came frighteningly close to total economic collapse. People were losing their jobs and their homes. Lines were forming at soup kitchens. Stimulus provided a backstop.

Rock-bottom rates have been great for stocks. But over the past decade, the Fed’s portfolio of securities has quadrupled. The Fed needs to unwind those assets.

The $1.5 trillion in tax cuts signed into law last month are poorly timed. The economy doesn’t need stimulus right now. U.S. growth exceeded 3% in the second and third quarters of 2017. Wages are rising.

It’s a recipe for inflation. Plan accordingly. Consider these allocations (see chart):

Gold is a proven hedge. Gold funds are safer and easier than owning physical bullion.

Another smart bet: Treasury Inflation-Protected Securities (TIPS). The principal of a TIPS rises with inflation and falls with deflation. TIPS are pegged to the Consumer Price Index.

When a TIPS matures, you’re paid the adjusted principal or original principal, whichever is greater.

Questions about hedging your portfolio? Drop me a line: mailbag@investingdaily.com

John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits.