Elon Musk, Tesla and Bitcoin: A Curious Relationship
Elon Musk, the world’s richest man, has had a curious relationship with the cryptocurrency space since he announced Tesla had bought over $1.5 billion worth of the leading cryptocurrency in 2021. The announcement, followed by the customary positive market activity, was one of many subsequent interventions in the cryptocurrency world by Musk, who has taken a liking to Bitcoin and dogecoin in particular. In fact, so much so, that analysis have been investigating the relationship between his Twitter musings and the price of crypto-assets. In the latest investigation, researchers at the Blockchain Research Lab (BRL) published a working paper analysing the effects of the billionaire’s tweets on the price of DOGE and BTC. Tbitex explores these findings and the role Musk continues to play in the crypto space.
The findings
The working paper, titled “How Elon Musk’s Twitter activity moves cryptocurrency markets“, analyzes the extent to which tweets made by the Tesla CEO affect the trading volume and price of DOGE and BTC. The BRL’s research looked at six tweets relating to the two cryptocurrencies made by the tech billionaire over a period of six months. The paper designates each tweet as an event and uses ‘event study methodology’ to analyze the event’s contribution to trading volume and returns. The researchers found that for all of the events studied, there was a significant relationship between theme and both the trading volume and price of DOGE and BTC. Four of the tweets seemingly were only reactions to market activity the study says, while two seem to have caused it. According to the paper, when Musk changed his Twitter bio to “#bitcoin”, BTC saw a cumulative abnormal return (CAR) of 6.31% in just 30 minutes. This increased to 13.19%, reaching a height of 18.99% over 7 hours. The second causal event occurred when Musk tweeted “One word: Doge”. This resulted in a CAR of 8.17% in just 5 minutes, reaching a height of 17.31% in just an hour. Cumulative abnormal return (CAR) is the total amount of all abnormal returns over a period of time. These two events highlight “the significant impact Elon Musk’s Twitter activity can have on cryptocurrency markets”, say the study’s authors.
Comparisons to the Gamestock saga
The study was set against the context of the so-called GameStop (GME) saga, in which a group of Redditors in the WallStreetBets subreddit, prompted by a disdain for ‘big money’ on Wall St. shorting declining stocks, decided to band together to simultaneously promote and invest in GME. This caused the stock to accelerate upwards, prompting some analysts to advise large Wall St hedge funds to double down on their bets against GME. However, the unrelenting determination of the Redditors, inspired by their determination to ‘stick it to the man’, quickly left those same analysts recommending positions to be closed and losses cut. Whilst this was a group effort, there are comparisons to be drawn to the findings of the BRL study. It is impossible to know the collective wealth of the active participants in a subreddit such as r/wallstreetbets, or how it might compare to the wealth of someone like Elon Musk, the world’s richest man, but it is likely that when a post gets enough momentum to set the agenda on a subreddit like this, it becomes a market-moving event in much the same way as one of Musk’s tweets.
Cause for concern?
While tweets probably only move cryptocurrency markets in extreme cases, Musk is the world’s richest man, after all, is there cause for concern? Whilst Musk has made clear that his cryptocurrency tweets are intended to be jocular in delivery, individuals with his kind of presence could manipulate the market for their own personal gain. This extends to groups too, as many in the cryptocurrency market know all too well. There is an abundance of so-called ‘pump-and-dump’ groups largely inhabiting Telegram. These groups attempt to create hype around a particular project for the purpose of triggering its price to rally. They then quickly ‘dump’ on unwitting buyers who fall for their malicious promotion.
The future influence of influencers
For now, the dedication to freedom in the cryptocurrency industry, from financial freedom to freedom of speech, naturally bodes well for influencers.In a free market, the price of a cryptocurrency will always ultimately be what people collectively decide it is worth. However, this means that extremely high net worth individuals like Musk, acting in good humour, genuine support, or out of personal interest, will likely continue to have a large impact on the cryptocurrency markets. Unless either regulators step in or the market becomes so big that even the world’s richest man has little influence, we’ll be keeping an eye on Musk’s Twitter. That said, we’ll be making our purchasing decisions firmly based one the core fundamentals of any given cryptocurrency. While the tweets of influencers may lead to short term bubbles in the market, it is your belief in the fundamental value of blockchain technology that should drive your decision making, not the whims of Twitter personalities.
