Anyone who is even marginally familiar with bitcoin has heard of Elon Musk. The CEO of Tesla, SpaceX, and The Boring Company, with over 55 million followers, appears to be unsettling the crypto industry with his hilarious tweets. He had played a vital role in legitimizing cryptocurrency with Wall Street investors but his recent tweets seem to have been scaring them off. His relationship with cryptocurrencies has been tumultuous to say the least. He used to adore them, then praised them, and now he thinks they’re bad for the environment. Elon Musk influence on Bitcoin is the most talked about topic these days.
The market appears to react to his tweets regarding cryptocurrencies every time he does so. About a quarter of Bitcoin’s value has been lost in the last week, thanks in part to Musk’s bizarre tweets about anything from Bitcoin’s environmental impact to whether Dogecoin is the better digital currency. The token is currently devalued to roughly the same level as it was when Tesla initially announced its plan to buy some in February.
Does this mean that Elon Musk influence on Bitcoin and his tweets are completely to be blamed for the cryptocurrency market’s ups and downs? Let’s take a closer look at it to understand the relationship:
Relationship between Elon, Twitter and cryptocurrency
Elon Musk’s tweets are well-known for his cryptocurrency proclamations. On Twitter platform, he has gained a lot of followers from the crypto sector who closely follow his tweets and are always eager to know his intentions and future plan about this sector.
Elon initially discussed bitcoin back in 2014, and described it as “probably a good thing.” Soon, rumors circulated that he was Satoshi Nakamoto (pseudonym of the of the Bitcoin founder). The entrepreneur responded with a tweet. “This is not the case. A few years back, a friend sent me a portion of a BTC, but I have no idea where it is today.”
Elon’s skepticism about cryptocurrency had improved by 2019 as he embarked on a more serious crypto indulgence journey. He began to think about its technology and utility as a possible part of his business models.
Prior to last month’s wild ride, crypto acceptance had been on the rise, with Tesla’s $1.5 billion purchase of Bitcoin in February serving as a watershed event. Musk claimed at the time that consumers will be able to buy his company’s automobiles using Bitcoin and that a piece of Tesla’s balance sheet will be held in the cryptocurrency.
This move, which was the first by a major corporate firm, fueled hopes that other corporate treasurers would follow suit and that crypto would eventually be able to gain traction as a medium of trade. Later on, Morgan Stanley and Goldman Sachs Group Inc. have also revealed their plans to provide crypto exposure to its clients.
In view of these developments, prices soared from $29,000 in January to $60,000 last month as a flood of new retail and institutional investors poured in. However, following the pullback from Mr. Musk, the token is now experiencing downward trend.
Musk’s Change of mind
Tesla liquidated 10% of its Bitcoin holdings in April, causing investors to worry. Elon reacted with a tweet claiming that Tesla just sold Bitcoin to test its liquidity and that he still owns the cryptocurrency but that was sufficient for to cause the turmoil.
Soon after, Elon Musk went on to shatter the hearts of many investors with comments that appeared to cast further doubts on the asset’s environmental effects. He tweeted that Tesla would no longer accept Bitcoin payments due to the cryptocurrency’s excessive energy consumption during the mining process.
This decision threw cryptocurrencies into a tailspin, with Bitcoin plummeting to roughly $34,000 as a result which shows how strong Elon Musk influence on Bitcoin is.
When he was asked about his views on cryptocurrency, he responded with a tweet that stated, “The fundamental conflict is between fiat and cryptocurrency. Overall, I prefer the later “..
Is Elon the only one responsible?
There has been a general perception that Elon Musk has the ability to impact the crypto markets with his tweets. However, a closer examination of how cryptocurrency works as an investment shows otherwise.
Any asset’s price cycle could be divided into four phases: accumulation, markup, distribution, and markdown. Any investment must go through this natural cycle in order to grow and survive in the longer run.
When the crypto market began to pick up at the end of 2020, it entered an accumulation phase, during which numerous investors entered the market. The currency increased in value and reached an all-time high of $60,000 in mid-February 2021. When the RSI indicator revealed that the asset was overbought, the distribution phase began, gradually prompting a markdown.
The cryptocurrency market’s collapse has had a negative impact on the investor sentiment. Elon, on the other hand, is tweeting a lot about it, so the decrease in Bitcoin valuation was not totally unexpected.
If you look at the price of Bitcoin in the past, you’ll note that its value plummeted even before Tesla made any announcements.
On the 25th of April, shortly after hitting an all-time high of $63,729, the largest cryptocurrency sees a substantial drop in value before recovering marginally.
Elon Musk later changed his mind about Bitcoin on May 12th, claiming that this was not the first time its value had fallen.
Many technical analysts feel Bitcoin was overbought at the time and required a catalyst to fix itself. May believe that Elon Musk’s tweets have worked as a catalyst for the crypto market’s much-anticipated fall.
It appears that general perception of Elon Musk influence on Bitcoin over its recent volatile Bitcoin valuation has become so convincing that other factors that could have potentially impacted the Bitcoin are completely ignored. One such potential factor is China Government’s crackdown on Bitcoin mining in the recent days.
Three state-run Chinese financial organizations cautioned Chinese banks not to supply their customers with any bitcoin or other virtual currency-related services, including trading, storage, or acceptance as a form of payment, earlier this week. The State Council, China’s cabinet, issued a statement later in the week that said “We should crack down on bitcoin mining and trading activities and prevent individual risks from being passed to the whole society.”
Will Bitcoin recover?
Bitcoin has fallen over 30 percent this month, but its value remains 300 percent higher than last year. The fall of this scale could be a tiny blip for an asset with great potential, such as Bitcoin itself. Elon Musk’s comments about Bitcoin’s environmental effects did have an impact on market mood. It was not, however, the sole cause of the market’s decline. Many other elements, like his tweets, only operate as a catalyst for driving investor attitudes.
Extreme volatility isn’t a new occurrence but an innate property of this new asset class. Volatility is what promotes significant increase in the value of cryptocurrencies.
However, attributing the rise and fall of a global asset to the actions of a single person appears to be risky. Cryptocurrency is not controlled or owned by a single person or organization. It is a community in itself and for the safety of its member’s investment, should better stay that way.
Nonetheless, like it or not, Musk has become the largest Bitcoin influencer. According to crypto insiders, the volatility caused by Musk is only a blip that will pass quickly and Bitcoin will come out strong post this crisis.
While there may be trigger points for investor mood, may renowned exchange service companies feel that the long-term outlook for cryptocurrencies remains positive.
The only worrying factor, however, is the likelihood that other countries would follow China’s lead in banning bitcoin. China has been working on introducing a state-issued digital currency with legitimate controls that could offer the solution against the risks associated with cryptocurrencies like Bitcoin. If that trend continues and more and more countries start to offer digital currency with state back up then usage and influence of Bitcoin could possibly be undermined and it will remain only a preferred choice for illicit transactions where strict Government controls need to be avoided.
So far, cryptocurrencies, especially Bitcoin have been sustaining well against all such risks and it seems they will gradually be able to find widespread acceptance as a means of payment.