Elon Musk's Power Over Crypto-Wall Street Journal

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[Elon Musk's Power Over Crypto, Explained-WSJ]

 

https://youtu.be/2Kp0mtpHpIs

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- So you woke up this morning,

you checked your crypto portfolio

and (man gasping) what happened to my crypto?

- [Narrator] Lately cryptocurrency prices

have been going on a wild ride

and a lot of it has to do with Elon Musk.

- Look, I know I sometimes say or post strange things

but that's just how my brain works.

- [Narrator] The Tesla and SpaceX CEO

has a lot to say about cryptocurrencies, often on Twitter.

- Surprise.

You just got Eloned.

- [Narrator] While Musk is the only thing

impacting crypto prices, one thing is clear.

- When he tweets about cryptocurrencies,

it can move markets and that power is unparalleled.

- [Narrator] Here's how Musk has amassed

such influence over cryptocurrencies

and why some experts are raising alarms.

To understand just how influential Musk can be,

take a look here.

On May 12th, Bitcoin was continuing

on a steady downward trend,

running off of an all-time high the month before.

At 5 o'clock p.m., the cryptocurrency was hovering

around $55,000 and then at 6:06 p.m., this happened.

Musk tweeted that his electric vehicle company,

Tesla, would no longer accept Bitcoin as payment

due to concern over rapidly increasing use

of fossil fuels for Bitcoin mining and transactions.

After the tweet went out,

the price of Bitcoin plunged more than 5%,

losing around $150 billion by the end of the day.

- After that, he did have a lot

of people who were really upset with Elon Musk.

- [Narrator] Caitlin Ostroff,

who has been following Musk's influence

on the crypto market for The Wall Street Journal says

that there's been speculation

that a lot of the selling after Elon's tweet

was because retail traders weren't used

to the high volatility.

- People have to understand

that this thing, this is a dice roll.

- [Narrator] They suddenly got nervous

that they were going to lose profits and sold.

- They were replying to him on Twitter

and they were saying you just cost me X thousands of dollars

because all of a sudden my investment portfolio

was worth 5,000 and now it's worth maybe 4.

- [Narrator] But hasn't just been Bitcoin.

Musk has tweeted about other cryptocurrencies as well.

Take the once joke crypto Dogecoin.

- And it keeps climbing.

The meme-inspired cryptocurrency nearly doubling

over the past week alone.

This ahead of Elon Musk's appearance on SNL.

- [Narrator] Early on May 8th,

before Musk was slated to host an episode

of "Saturday Night Live,"

Dogecoin was trading around 73 cents.

Investors had been pumping money into the cryptocurrency

based on speculation that it could finally reach a dollar.

But that didn't happen.

During a skit, he performed in the guise

of a financial expert,

the self-proclaimed Doge Father jokingly explained

what Dogecoin is.

- It's a cryptocurrency you can trade

for conventional money.

- Oh, so it's a hustle.

- Yeah, it's a hustle.

(audience laughing)

- [Narrator] By the time the episode ended,

the price of the crypto had plummeted around 30%.

- That comment alone rattled the confidence

that people had that Dogecoin

could keep pushing higher

and people took profits

and all of a sudden, it sold off.

- [Narrator] But then two weeks later,

Musk tweeted a picture of a Shiba Inu on a dollar

with the question how much is that Doge in the window?

Following his tweet, the price spiked.

- Dogecoin, unlike Bitcoin,

doesn't really have an investment case

and that means that Dogecoin

is really just a cryptocurrency built on memes.

The only reason it has any value at all at the moment

is because Elon Musk first started caring about it

and then Snoop Dogg started caring about it.

And then all of these other rappers

and celebrities starting tweeting about Dogecoin.

- [Narrator] While these are two of the most recent examples

of Musk influencing crypto, there are many more.

And there are other forces at play

that have allowed Musk

to amass the influence he has on crypto.

Over the last year,

there has been a flood of new retail investors,

largely driven by the rise

in no-fee trading apps, like Robhinhood.

Meltem Demirors, an executive

at the asset management firm CoinShares

says that no-fee trading apps

have increased the popularity of crypto

because people can access more types of assets

on the same platform.

- It's also made really illiquid cryptocurrencies

of the past much more liquid

because there's now much more retail participation.

- [Narrator] Some experts say younger people gravitate

towards Musk because they like his idea

of the future and see him as rebellious.

And Demirors says Musk's huge Twitter following

is a big part of his influence.

He has over 56 million followers.

- Financial markets, to some people,

are a form of entertainment

and so I think what we are seeing

is the gamification of clout on social media

where people are recognizing

that they can manipulate markets using social media

as a tool.

- [Narrator] but she says Musk's influence

on the crypto market has downsides.

- There is a wide range of ways

through which market participants

are acting on their desire to buy and sell cryptocurrencies

and as a result,

we see is more liquidity

but also more volatility

when people like the Elon Musk

are tweeting directly to retail.

- [Narrator] All assets are subject to ups and downs

but as you can see from the big swings on this chart,

crypto's especially volatile.

- All of a sudden, Elon has reminded people no,

this isn't just going up in a straight line,

it does come down and when it does, it can be fast.

- [Narrator] These market swings

can have a very real impact on retail investors

but for some, the risk is worth.

- Because there's no fundamentals,

it makes it really hard

to try and figure out where the floor is,

like where the fair value

and where the selloff should stop when it happens.

And so you inherently wind up having

a much more volatile market,

which is what appeals to some investors for this.

They don't want the steady returns

of the S&P where they have to wait 30 years

to get where they wanna be.

They want to get these fast, sharp returns.

- [Narrator] Some experts think that Musk's influence

on Bitcoin may be waning.

But for now, his tweets continue

to send shock waves through the crypto market.