Contextualizing Musk’s latest hot takes on crypto.
With over 58.5 million Twitter followers, Tesla’s founder and CEO Elon Musk’s erratic tweets have taken the financial world by storm.
Public statements made by Musk have a strange power over markets, having the potential to initiate the fluctuation of cryptocurrency prices or even affect the stock market.
His tweets have even landed him in hot water when the Securities and Exchange Commission (SEC) in the US charged him with fraud for an inaccurate tweet in 2018. Musk tweeted that he was thinking of taking Tesla private at US$420 per share. In his tweet, Musk had rounded up the price by US$1, which the SEC believed was fraudulent. Musk later clarified that no final decision had been made on taking the company private, yet the tweet sent the company’s stock see-sawing for weeks. The SEC has pointed out that Musk has a responsibility to be careful when communicating with the investing public. As a consequence of his tweet, he was fined US$20 million and was compelled to step down from being the chairman of Tesla’s board.
Some of Musk’s twitter followers consider his tweets equivalent to an expected rise in prices or a bullish market. With investors putting their faith in Musk, it has become all the more important to understand how he affects the crypto market.
Here is a breakdown of all his major publicly-stated views on crypto and the events that ensued after these views were expressed.
Starting the year with a surge: January and February
In early January, Bitcoin had reached an all-time high price of US$41,000. This hike in price was attributed to governments across the world pumping money back into their countries to combat the economic crisis caused by COVID-19.
Musk kept this upward trend going by changing his Twitter bio to #Bitcoin in the latter half of the month. Bitcoin prices had been fluctuating between US$31,000 and $33,000 before the change in his bio, after which they reached US $38,089. Musk addressed the surge by tweeting out, “In retrospect, it was inevitable.”
Musk has been a strong believer in the potential of Bitcoin. He even took to the social media application Clubhouse to say, “I think Bitcoin is on the verge of getting broad acceptance by conventional finance people.” In early February, Tesla confirmed that it held US$1.5 billion worth of Bitcoin and that it would be accepting Bitcoin as a payment method for its products in the near future. Following these announcements, Tesla’s shares rose by 2% and Bitcoin prices surged, reaching US$44,200.
Bitcoin wasn’t the only cryptocurrency that Musk influenced in the first two months of 2021. He also actively showed his support for Dogecoin. Dogecoin is a cryptocurrency that was made as a joke to make fun of the wild speculation trends in cryptocurrency in 2013. On February 4, Musk shared a picture of a rocket going to the moon with the caption ‘Dogue’. He followed the post up with a tweet calling Dogecoin “the people’s crypto”, which resulted in a 67% surge in Dogecoin.
Following up with talks on scams and memes: March and April
March and April were also filled with witty commentary and memes on Bitcoin and Dogecoin. Scammers utilized Musk’s support for cryptocurrency by creating fake Twitter handles using his name.
These fake accounts had links to websites where fake Bitcoin giveaways were taking place. The scammers hosting these fake giveaways would invite people to send them anything from 0.1 BTC to 20BTC, promising that they would double it. Believing Musk impersonators to be real, people sent over US$2 million in Bitcoin to them.
Musk directly addressed the hackers tweeting, “Scammers & crypto should get a room.” He continued to support crypto, even joking that Bitcoin (BTC) was an anagram for his tunneling business The Boring Company (TBC). In March, he officially announced that people could now buy the company’s products using Bitcoin.
His stance on Dogecoin remained firm as well. On April 1, he stated that his aerospace company SpaceX would be sending a Dogecoin to the moon. He also promoted his appearance on Saturday Night Live dubbing himself ‘Dogefather.’ This again led to a hike in the cryptocurrency’s price by 32%.
Taking a 180-degree turn: May and June
Musk warned people to be careful when making crypto investments in a tweet in May. This warning followed his unexpected and sudden change of heart about Bitcoin. Musk made an official statement reverting Tesla’s decision to accept payment in Bitcoin. This was because Bitcoin mining involves solving complex mathematical problems, which requires computers with high processing speeds. Such computers consume large amounts of electricity. This demand for energy is met by burning fossil fuels like coal, which adversely affects the environment through release of greenhouse gases.
Bitcoin experienced a US$300 billion crash with its price dropping by 20% after Musk’s announcement. However, Tesla has still held onto its Bitcoin investments. Musk tweeted that Tesla is looking at alternative cryptocurrencies that use less than 1% of the energy required for Bitcoin transactions, but may even consider accepting Bitcoin payments if miners move to cleaner energy sources. Bitcoin prices rose by 5.1% soon after this tweet.
At the same time, Musk lived up to his promise from April and announced that Space X would be sending a Dogecoin-funded mission, DOGE-1 to the moon in the first quarter of 2022. He even asked his Twitter followers whether they wanted Tesla to accept Dogecoin. In spite of his support, by June, Dogecoin’s prices fell by more than 10% to US$0.36.
Continued support for crypto and what it could mean: July and Beyond
Musk and Twitter founder Jack Dorsey agreed to have a discussion on Bitcoin in an event called “The B-Word” in July. The resulting discussion led to a 10% hike in Bitcoin prices. Confirming his faith in Bitcoin, he said, “I might pump, but I don’t dump… I definitely do not believe in getting the price high and selling… I would like to see Bitcoin succeed.” Musk also stated that he personally owned Ethereum’s cryptocurrency, Ether. This resulted in a rise in Ether prices which surged by 10.6% to US$2,000.
While his position on Bitcoin has changed over time, Musk’s stance on Dogecoin is consistent. Recently, he shared a Matrix-inspired meme that said that Dogecoin is money. The cryptocurrency has seen a staggering 6000% growth since 2020, with the price rising each time Musk tweets about it.
Lennert Ante, from the Blockchain Research Lab in Germany, conducted a study to measure the “Musk Effect” to understand how much influence Elon Musk has had over cryptocurrency prices. Ante suggests that Musk’s stance on crypto should not be an indicator of whether one should invest in cryptocurrency or not. He found that, while Musk’s tweets did have a significant impact on crypto prices, his activities on Twitter could not be understood in isolation as some of his tweets were merely reactions to market trends.
Whether his statements will result in Musk getting into trouble with the SEC again remains to be seen. Nevertheless, what can be discerned is that cryptocurrency is extremely volatile and is an area to be tread cautiously. The impact of Musk’s tweets is limited, and thus, investors attempting to gauge the market using his tweets should evaluate larger market trends as well.
Header image courtesy of Unsplash
