Elon Musk is one of the most accomplished, wealthy, and powerful people in the world. Over the past year, he has made a habit of writing about cryptocurrencies on his Twitter account, inducing sharp fluctuations in crypto prices ranging between $5000 and $6000. We will proceed to look into the reasons why tweets of a single man make such a tremendous impact on the market and which benefits can be reaped from the further remarks of the multibillionaire.
Why Elon Musk is a game changer in the crypto market
Elon Musk is the CEO of Tesla and SpaceX, whose net worth is over $150 billion. His Twitter account boasts 58 million followers, so it’s no surprise he has made a tangible impact on the cryptocurrency market. Not to mention that Tesla possesses 42,902 BTC, which roughly amounts to $1,6 billion (taking into account the exchange rate as of April 27th, 2021).
Elon Musk’s profound influence on every facet of the world’s technological development seems unlimited. His main power lies with the ability to draw newbie investors and enforce control over them. The thing is, that Musk, not least because of his engineering and entrepreneur talent, has long since acquired some sort of iconic status for many people around the world. Lots of individuals are keen to buy Tesla stock or stock of other companies publicly endorsed by Musk just because he’s a cool dude.
There’s substantial evidence to back up that suggestion:
- Tesla’s market capitalization amounts to $800 billion, which is nearly three times higher than the total market cap of the American car manufacturers, although Tesla holds less than 1% of the world’s market in terms of manufacturing. Volkswagen AG, by contrast, has 14% of the market share, but its market cap is only $144 million.
- Musk’s tweet, where he called on to use Signal messenger, elicited an uptick in Signal Advance stocks by an outstanding 1100%. The entrepreneur’s fans caused a price leap for the shares of the company with a similar name, which had nothing to do with the messenger Musk had referred to. Press representatives of Signal messenger even issued a statement pointing out that people had been investing in the wrong company.
- The announcement of a live session on Clubhouse has shown a similar pattern. Investors rushed to buy shares of Clubhouse Media Group, causing its price to climb 100%. The problem was that it wasn’t the Clubhouse that Musk had brought up.
- Among other things, on his Twitter account, Musk repeatedly joked about cryptocurrency Dogecoin. The coin’s price increased by 800% in the wake of these tweets.
Savvy investors, or, in fact, anyone with a shred of experience in stock trading, wouldn’t make those mistakes.
Musk’s tweets on Bitcoin and Dogecoin, and their repercussions for the market
Musk mentioned Bitcoin for the first time on January 29th, 2021. He added tag #bitcoin to his bio and then posted a tweet: In retrospect, it was inevitable. Bitcoin’s price instantly rose from $32 to $37 thousand. In that very message he announced that Tesla invested $1,5 billion in BTC, making it public on February 8th. This news prompted a spike in BTC’s price, which jumped to $44 thousand.
In his next tweet, Musk wrote the following: You can now buy a Tesla with Bitcoin. That tweet made bitcoin’s price soar from $54 to $56,5 thousand.
Soon, Musk wrote of bitcoin one more time, pointing out that Tesla wasn’t going to convert BTC into fiat currency. That, in turn, had a positive effect on the first cryptocurrency rate.
But not all Musk’s tweets on bitcoins initiated positive changes on the market. When he announced the suspension of Tesla purchases with Bitcoin in May 2021 due to its enormous environmental toll, BTC’s price plummeted 28%, from $58 to $42 thousand.
There were some other negative and positive comments on bitcoin that, in one way or another, caused a stir in the market. Musk’s latest tweets and their effect on the market can be tracked on the website ElonOMeter.
How to react to further Musk’s tweets?
At the beginning of 2021, Lennart Ante from Blockchain Research Lab in Germany ventured to measure the “Musk effect.” He decomposed six of his tweets on crypto and found some commonalities that might be helpful for investors:
- If, prior to a tweet, the trading was unstable, its impact on the market is more likely to be minor or have zero effect. But if volatility is relatively low, there is a potential for considerable change in the market, which would manifest itself in the sharp increase in trading volume.
- Musk’s tweets are most impactful during a brief period of time. The effect starts to kick in shortly after posting and lasts for a while after the news has permeated around the network. The fallout would be particularly pronounced when the information campaign has reached its peak, and once the drumbeat of Musk’s comments starts to subside, so does the market response.
Whose tweets are worth heeding?
Luckily, there’s not many people in the world who can instigate a rally or slump in the crypto exchange rate with one tweet. Apart from Musk, the group of influencers includes Vitalik Buterin (founder of Ethereum), Brian Armstrong (co-founder of Coinbase), Changpeng Zhao (founder of Binance), and executives of the major US, Chinese and European regulators.