Elon Musk’s tweets have a huge influence on crypto

May 31, 2021

Elon Musk has long been one of the biggest supporters of cryptocurrencies in the world. The CEO of SpaceX and Tesla has made several public statements about the impact and potential of crypto, and these, along with his frequent tweets on the subject, have turned him into the world’s biggest crypto influencer. His tweets often set off huge price movements in the crypto markets, and there have even been suggestions that he is trying to manipulate the market to his benefit through these actions.

The recent crash in the crypto market owes quite a lot to Musk’s tweets and actions. The 49-year-old appeared on the American TV show Saturday Night Live on 8th May 2021, where he did talk about cryptocurrencies, specifically Dogecoin. But crypto traders, who had been waiting for weeks for this appearance as they expected positive statements about cryptocurrencies from him, were taken by surprise, as Musk referred to Dogecoin as a “hustle”, and said that its value was mostly speculative at this point in time. This triggered a huge fall in the price of this cryptocurrency, which is also owned by Musk. The South African-born entrepreneur also tweeted in support of the token later, which helped to stabilize prices a little.

He has also had an influence on the Bitcoin market, most recently through Tesla. Tesla had announced earlier in the year that it had bought $1.5 billion worth of Bitcoin, which was seen as a huge sign of support for the token, and sent prices soaring. The company also announced soon after that it would begin accepting Bitcoin as payment for its vehicles, which again caused Bitcoin prices to rise considerably. However, last week, the company stated that it was suspending this plan, due to concerns around the environmental impact of Bitcoin. This triggered an immediate crash of more than 10% in Bitcoin, and the overall crypto market has dropped by nearly half since then, with the likes of Bitcoin and Ethereum trading at around 50% of their lifetime highs from earlier in the year.

There have been questions around Musk’s tweets and actions, with many people likening them to a ‘pump and dump’ strategy, where bullish statements about crypto would send prices higher before the reality was revealed, or Musk himself pulled the rug out, causing prices to crash. While there has been no suggestion that the original statement that Tesla would accept Bitcoin was intended to mislead, it is the speed at which this about-turn has occurred that has led to questions. However, Musk has faced similar accusations before with regard to the price of Tesla, and there are several crypto analysts who believe that this market manipulation was definitely intentional.

Musk had tweeted that Tesla had secured funding to take Tesla private at the price of $420/share back in 2018. This was a significant premium to the company’s share price at that point, and thus this news led to the stock jumping. However, this funding never materialized, and Musk had to settle a fraud and securities lawsuit brought by the US SEC, with a $40 million fine being paid, while Musk also had to step down as Tesla’s chairman. Of course, this was possible because of the laws which make it binding for executives at publicly traded companies to make truthful statements about their companies, along with laws governing buying and selling of shares in their own companies as well as information disclosure to markets. However, there are no such rules or laws in the crypto sector at present, which will make it nearly impossible to try and censure Musk for his tweets. While crypto exchanges are regulated, cryptocurrencies themselves are not – they are decentralized, which means that no single entity controls them, and thus nobody has the authority to investigate and potentially punish Musk’s tweets. There may be a case to be made in terms of his tweets around Tesla and Bitcoin, as the value of Tesla’s bitcoin investment has dropped by around $400 million due to Musk’s tweets – and this volatility is not something that institutional investors want. However, overall, it would be very difficult to try and build a case against Musk on the basis of his tweets, and their impact says more about the crypto market at the moment than any malicious intent from Musk.