How Elon musk is influencing prices of crypto with just a tweet


Elon Musk, the CEO of Tesla, SpaceX, and The Boring
Company has become a crypto kingmaker who disrupts the crypto market with his
tweets. Crypto Investors eagerly wait to make gains on his next
tweet.
The celebrity CEO, who has over 55 Million followers,
seems to have shaken the crypto market with his tweets. His relationship with
cryptocurrencies has rather been a complex one. First, he has been tweeting a
lot on the microblogging site in favor of cryptocurrency--pushing the price of
Bitcoin and Dogecoin up. In January, when he changed his Twitter bio to
#bitcoin, the price of Bitcoin rose to nearly 20% within few hours. And
recently he tweeted that cryptocurrencies are terrible for the environment. As
a result, the price of bitcoin dropped around 15 percent soon after the tweet.
"Tesla has suspended vehicle purchases using
Bitcoin. We are concerned about the rapidly increasing use of fossil fuels for
Bitcoin mining and transactions, especially coal, which has the worst emissions
of any fuel,” Elon Musk said in a tweet.
"Cryptocurrency is a good idea and we believe it has
a promising future, but this cannot come at a great cost to the environment.”
He furthers adds that Tesla will not be selling any
Bitcoin and intends to use it for transactions once the mining transitions to
more sustainable energy. “We are also looking at other cryptocurrencies that
use <1% of Bitcoin’s energy consumption.”
This volatility in the crypto space with just 280
characters has raised concerns about the stability of a crypto market, making
many investors rethink cryptocurrency being a viable investment. This comes at
times when more investors and countries are looking forward to cryptocurrencies
as an alternative to fiat currency.
Tesla bought $1.5 billion worth of bitcoin earlier this
year, sold 10% of it to demonstrate the token’s liquidity, generating $101
million in income from the sale. Elon Musk has retained his personal investmentin cryptocurrency.
Is Elon Musk responsible for volatility in the crypto space?
Volatility is quite common in the cryptocurrency market,
but Musk’s history with crypto has rather been a curious trend over the last
year. whenever he tweets about any digital currency, the price often shoots to
the sky or sinks like a stone.
Billionaire’s series of tweets on Cryptocurrency has been
influencing or triggering price fluctuations.
In 2014, for instance, Tesla's CEO first mentioned
bitcoin to be 'probably a good thing'. Soon people started comparing him to
Satoshi Nakamoto (pseudonym name), the founder of bitcoin.
Over the past few months, Elon Musk's tweets have been
creating a stir in the cryptocurrency market. On January 29, 2021, Elon Musk
changed his Twitter bio to #bitcoin, skyrocketing prices from $32,000 to almost
$38,000 in a matter of hours.
Musk’s affection for the memecoin is well-known. On
January 28, the posting of a picture about Dogecoin didn’t have an immediate
impact but was still substantial for a lesser known player like Dogecoin to
increase its value and reach new heights in the crypto industry.
On December 20, 2020 tweet, Musk’s one-word tweet
"Dogecoin" and changing of his Twitter bio to "Former CEO of
Dogecoin" had one of the biggest impacts on the memecoin.
According to Lennart Ante of the Blockchain Research Lab in Germany
“The average trading volume of DOGE/USDT in the 30
minutes before the event was about $1,942 per minute with an average of 9
trades per minute. During the 30 minutes after the tweet, the average trading
volume per minute was about $299,330 with 775 trades per minute.”
On the same day, another tweet by the Tesla CEO “Bitcoin
is my safe word” and “Bitcoin is almost as bs as fiat money” had a negative
impact on the bitcoin prices, declining to roughly 1.7%, with no measurable
change in trading volume.
The value of bitcoin rose from $32,000 to reach $38,000,
after Musk changed his Twitter bio to #bitcoin on January 29, 2021.
On May 13, Elon Musk shocked the entire crypto market by
expressing his concerns about Bitcoin's energy-intensive mining process and its
effects on the environment. He adds that Tesla would stop accepting Bitcoinpayments for the purchase of its cars. The tweets were followed by a plunge in
the Bitcoin prices to around 17 percent.
Multiple weeks later, Musk addressed the problem of
bitcoin's environmental concerns, calling the decision by the group of North
American bitcoin miners to reveal renewable consumption "quite
encouraging." This tweet resulted in the 4% price increase of bitcoin.
This series of tweets have resulted in Musk losing his
crypto-enthusiast admirers, but he assured that Tesla could eventually resume
Bitcoin transactions once the cryptocurrency's mining poses less environmental
concerns.
Should Investors rely on Musk’s Tweets?
Even though Elon Musk’s tweets are moving markets, not
all his tweets on Bitcoin and other cryptocurrencies have had a positive impact
on the prices. His tweets can either increase or decrease the valve of Bitcoin,
so it’s risky for investors to assume that every tweet is a buy recommendation.
According to a survey by market research company Cardify,
about 33.5 percent of buyers have either zero knowledge about virtual
currencies. Many industry experts have cautioned crypto users not to making
investment decisions just on the basis of Musk’s tweet as these digital tokens
can crash by 20 to 30 percent overnight, instead it's safer to buy
cryptocurrencies after “fully understanding” their value and potential.
Conclusion
Elon Musk is known to conquer new markets, be it electric
cars or space exploration, now he is hoping to soon launch a drive-in food
chain across the US. Musk's tweets have some kind of impact on the price of the
cryptocurrency due to its volatile nature. However, Elon Musk is not going to
have this influence forever as cryptocurrency becomes more mainstream with more
nations adopting it, the market will eventually calm.

Pavan A
CBW - External Analyst
INDIA