Cryptocurrency News

Elon Musk’s Tweets Have a Big Impact on the Cryptocurrency Market – the “Elon Effect”

By March 11, 2021 No Comments

Key Highlights

  • Elon Musk, the CEO of Tesla, is a notable supporter of Bitcoin and Dogecoin
  • He often tweets his opinions about cryptocurrencies and company stocks
  • A quick comparison of his tweets with market data shows that Musk has the power to lift an asset up or even cause it to plunge
  • Elon Musk is reportedly already under investigation by the U.S. SEC for his Dogecoin tweets

Elon Musk, one of the top U.S. entrepreneurs and the richest person alive as of January 2021, has always been very active on his social media accounts, especially Twitter. However,  between the SpaceX rocket launch videos and Tesla’s announcements, one can find several tweets that discuss stocks and lately cryptocurrency projects as well. Tesla CEO, whose net worth is estimated to hover around $185 billion, can have a significant impact on markets thanks to his massive reach of 49 million followers. the promoted stock, or crypto pumps.

What is the “Elon Effect”?

Due to his wealth, recognition, and number of Twitter followers, Elon Musk is undoubtedly one of the most influential people on social media. As such his tweets have the power to either drive in additional investors if the comment is positive, or even trigger sell-offs if his opinion on a certain asset is negative.

In reality Musk’s tweets are often too short to reflect his more elaborate opinions as they consist of just two or three words. Nevertheless, the mention of a cryptocurrency or stock alone is enough for some retail investors to throw money at the mentioned asset. While some are really influenced by the hype that the influential automaker’s CEO is spreading, many have figured out that trading based on Musk’s Twitter activitycan be a way to make a quick buck by monetizing on the hype. There have been numerous examples of assets making notable price moves right after Musk mentions them publicly.

Bitcoin, Dogecoin, GameStop and even Tesla – Musk has Tweeted About Them All

In the past, Musk has tweeted mostly about U.S. stocks. In the past years, however, the entrepreneur’s interests have also shifted to cryptocurrencies. And because certain cryptocurrency markets are still dominated by retail investors it is the cryptocurrency market, the “Elon effect” has been hugely impactful. Musk is especially fond of Bitcoin and Dogecoin.

In fact, the recent Dogecoin renaissance, which caused the almost-forgotten meme coin to surge from below $0.01 to over $0.08 on February 7, can partly be attributed to a series of Musk’s Dogecoin-related tweets and statements. The most recent addition to the collection of his Doge remarks is:

Leaving the cryptocurrency that was created in 2013 as a joke aside, Musk is also interested in the world’s largest and most reputable cryptocurrency – Bitcoin. On January 29, 2021, Elon Musk changed his Twitter bio to #Bitcoin and the world’s largest cryptocurrency climbed by  around 20% in the following 24 hours raising the Bitcoin’s total market capitalization by more than $50 billion. The Tesla CEO is clearly a big Bitcoin supporter, which has undoubtedly played a crucial role behind the automaker’s recent $1.5 billion BTC investment. Tesla’s BTC investment has already produced significant (unrealized) gains.

On February 20, Musk said that the prices of Bitcoin and Ethereum seemed high. In the week following the tweet, the price of Bitcoin dropped from an all-time high $58,000 to $43,000. However, it might be unfair to say that Musk’s tweet had an impact in this sell-off, as it started more than a day after the tweet and Bitcoin might have been due for a price correction anyway after rallying to a new all-time high.

In one of the recent interviews, Musk stated that he is a Bitcoin supporter as well as confirmed that he is well aware of how his statements could affect the markets. He stated:

“I’ve got to watch what I say here because some of these things can really move the market… I do at this point think bitcoin is a good thing, and I am a supporter of bitcoin. I think bitcoin is really on the verge of getting broad acceptance by conventional finance people.”

Interestingly, Musk’s tweets have also impacted the price of the shares of his own company Tesla. In a Twitter post dating back to May 1, 2020, he wrote that he believed the price of Tesla shares were too high. Following that tweet, the valuation of his company plunged by more than 10%. These examples prove that no matter what he’s posting about, his opinion matters a lot to many investors. As such, he has the power to move the markets in one direction or another.

Is This a Form of Market Manipulation?

Judging by the aforementioned examples, Musk can significantly influence the market of literally any tradable asset by tweeting just a few words. However, the “Elon Musk” effect is especially strong on small market cap assets and assets with less mature markets and infrastructure. In addition, Musk’s statements indicate that he is aware of his power. Therefore, several experts have urged the U.S. Securities and Exchange Commission to investigate whether this is a case of market manipulation or not. Economist Nouriel Roubini is one of the most vocal financial experts to call for the SEC’s attention. He stated:

“For somebody like Elon Musk, who knows he has the market impact to manipulate, first take an individual position in Bitcoin, pump the price up, and then say that Tesla has invested. And Tesla does not make any money yet, it is also irresponsible, and it is market manipulation. The SEC should be looking into people that have a market impact, and that manipulate the price of assets. That’s also criminal behaviour.”

Reportedly, the SEC has indeed started an investigation of Musk’s Dogecoin tweets. The Bitcoin related posts and bio changes are allegedly not being investigated. However, unconfirmed rumours have surfaced that Musk has already deleted some of his old Bitcoin-related tweets.