With Tesla revealing that it had sold 75% of its Bitcoin holding in Q2 2022, it’s a good time to take stock of just how much influence Elon Musk has over crypto.
There was a surge in retail investment in crypto in 2021. A high level of retail involvement opens up the possibility of the space being particularly susceptible to celebrity views and endorsement.
And Musk, with his long history of putting himself in the spotlight, is certainly one of those people.
Elon Musk’s short-term influence over Bitcoin price
It’s useful to look at Musk’s influence on crypto in terms of timeframe.
Over the short term, the nature of his crypto-related tweets in 2021 added fuel to the fire, given that the market was in the middle of a hype cycle. Although they do generate interest, hype cycles are ugly. They destabilize a market, leading to panic buying which later becomes panic selling.
Musk almost certainly doesn’t have the exclusive ability to create that fervor, although his tweets do seem to relish in the attention that such an idea brings.
As Bitcoin and crypto had proven in the past, it is capable of getting ahead of its skis all on its own. However, there’s no doubt that his commentary on social media raised the level of FOMO (fear of missing out) and added froth to the market.
Musk’s social media activity had gotten him into trouble in the past. In 2018, he reached a settlement with the Securities and Exchange Commission (SEC) after the SEC had charged him with securities fraud on the basis of misleading tweets.
With that in mind, what can be said is that it has to be obvious to Musk (as the world’s richest man with over 100 million followers on Twitter) that his tweets are influential and can potentially move markets; particularly those markets where investors are retail rather than institutional.
Elon Musk’s influence over Dogecoin
On February 4, 2021, meme-based cryptocurrency Dogecoin gained 25% in a matter of minutes following an endorsement on Twitter by Musk.
Earlier in the day, he had posted a picture of a rocket and the moon, and added the comment “DOGE” in a reply to his own tweet. Along with a hike in the DOGE unit price, trading volume also surged by 100% when compared with the previous day’s trading.
On March 24, he was at it again. In his tweet he declared: “You can now buy a Tesla with Bitcoin”. News that an iconic company like Tesla was accepting Bitcoin as payment certainly played a part in the digital asset reaching new all time price highs in that month.
Fast forward to December and Musk tweeted: “Tesla will make some merch buyable with Doge & see how it goes”. Over the course of the next two hours, the Dogecoin price rose by 43%.
The Doge saga has ended up with a class action lawsuit launched against Musk for allegedly promoting a "crypto pyramid scheme".
Elon Musk’s long term influence over crypto
Musk’s short term influence over the course of the recent crypto bull market was impactful. There’s no doubt that his influence led to a segment of people getting involved with Bitcoin and crypto for the first time.
Over the longer term, the revelation on Wednesday that Musk’s Tesla has sold $936 million worth of Bitcoin is damaging to the narrative that Bitcoin makes for a good balance sheet asset for a corporation. Assuming, of course, that Tesla aren’t planning to buy back BTC at a lower price - the company sold just below their average buying price in the previous year, meaning that they could be fishing for a price bottom.
In a filing with the Securities and Exchange Commission (SEC) last April, Tesla said that it believed “in the long term potential of digital assets both as an investment and as a liquid alternative to cash”.
It’s likely that some people jumped into the crypto market solely on the basis of these comments. As the market has since seen a downturn, those are likely to be the very same people who have now left the market.
Crypto ‘tourists’ who have not reached a strong level of conviction in crypto themselves are less likely to have the fortitude to remain invested in the market through a severe downturn. However, hype and celebrity endorsement can lead a proportion of the very same people to take a more active interest and develop their own view as to how this decentralized technology has merit. For those who didn’t develop their own view, Musk’s influence has been troublesome.
Bitcoin and the crypto movement is bigger than any one person
DYOR - do your own research - is not just a meme in crypto. Making investment decisions based exclusively on the Twitter whims of an attention-seeking billionaire is unlikely to end well. You might say, “in retrospect, it was inevitable”.
Meanwhile other factors, such as Bitcoin mining profits, halving cycles, project tokenomics, use case fundamentals and international regulation, will continue to be the most important factors in crypto market movements.
While the crypto space is still far from reaching maturity, celebrity thoughts and views on the subject are likely to continue to weigh heavily. Even Musk's recent interest in buying Twitter has stoked speculative interest among Doge degens, before the sale also ended in an impending lawsuit after another apparent “change of heart”.
Given the personality of the entrepreneur, it’s unlikely that he will stop commenting on crypto as it develops. Unless retail investors are suddenly outnumbered by institutional investors in the crypto space, Elon Musk is likely to continue to have an outsized influence on the crypto market in the short term.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.