Since the announcement of Tesla’s delayed and much-discussed entry into the cryptocurrency market in February 2021, Elon Musk has been a frequent tweeter on the subject. Musk’s messages have divided the crypto community sharply, with some believing he has an immense influence on the market and could be a serious player in the space, while others are more skeptical of his actual power and market status. On the 29th of May, one of Musk’s tweets caused an uproar, when he suggested that he would delete his Twitter account – a platform which he has been using since 2009.
Although Musk’s tweet did not resonate initially, with fans and critics alike doubting the reliability of the claim, the news gained traction with many outlets picking it up, prompting debate on what it could mean for the future of the cryptocurrency space. Generally speaking, the reaction appeared divided between those who saw Musk’s famed influence and positive attitude as key to the success of the virtual currency as a viable asset, and those who believed that, with the incorrect and unpredictable nature of his tweets, it is advisable for him to cease from making statements in the sector.
In the industry, it was generally believed that should he delete his Twitter account, the short-term impact on the cryptocurrency market would be minimal. Senior analyst Tyler Coates of Jefferies Global Markets predicted his departure “wouldn’t cause a huge stir”. Still, he pointed out that in the long run “the social aspect of the digital currency space would be lost without his tweets”, as they have been a valid source of news, insights, and market movement in the past months. Others were even more descriptive in their outlooks, with the founder of cryptocurrency investment company MetaStable calling the proposed deletion “a blow to the ego of the crypto investor class” and “the end of an era”.
Regardless of the mood of his tweets, Musk has also been widely criticized for his wide-reaching and unregulated power in the sector. Cryptocurrency investors have voiced their disapproval of Musk’s reliance on Twitter for market indicators and his ability to nudge prices in the direction of his own interests. His activity has been widely seen as a factor in the market distorting prices, while also increasing volatility. This has had the wide-spread effect of introducing uncertainty to the sector as investors struggle to quantify risk in the volatile situation.
Unsurprisingly, Musk’s tweet has called the reliability of Twitter platforms into question with many thinking that investors should not be tempted by short-term gains and focus more on the bigger picture. Furthermore, it has highlighted the potential for the abuse of social media outlets for the purpose of swaying investor interests and affecting markets. Upon closer analysis, it is evident that flouting the laws of the markets of securities and commodities, as well as implications for market manipulation, are areas of serious concern that should be treated as such.
The reaction to Musk’s tweet also reveals the limitations of free-market tradition, as an unpredictable and sometimes immature actor is allowed to exert immense power in the market. It thus raises the question of whether markets should be regulated by public powers to maintain some stability rather than person-made forces, and whether legislation governing the bidding of markets is adequate or should be amended or replaced.
Privacy and its implications
Despite the sense of instability echoing through the crypto-community, some saw the tweet as a sign of hope in the industry. Musk’s status as an international celebrity has long since been an open secret, with some of his comments underlining his interest in the concept of privacy. He has been a vocal supporter of initiatives that help protect this concept, such as attempting to offer alternatives to traditional taxation and launching private space exploration firms. His tweet, then, has catalyzed a conversation regarding his approach to privacy and its implication for the cryptocurrency space.
At its core, privacy is about protecting information from those who are not authorized to access it. Companies pushing for regulation such as Libra need to ensure that user data is managed safely and securely. Currently, tech giants such as Google and Facebook are largely responsible for collecting data from users. Musk predicted that cryptocurrency is “probably the future” in regards to privacy, as data is managed through a decentralized digital payment system. Therefore, without interference or influence from centralized third-parties, the value of cryptocurrency will increase if the privacy of users is maintained.
As a result, Musk’s announcement can be seen as a sign of hope for the sector. A growing number of investors agree with the tech billionaire that cryptocurrencies, by offering more privacy, are more resilient and better able to ride out short-term volatility. They contend that current government efforts to legalize and heavily regulate the industry may have missed the main point of the innovation: the idea of digital freedom. By supporting the interests of the users, thereby promoting the use of cryptocurrencies, and ensuring the privacy of their users, these advocates argue that all investors could be better protected.
What does the future hold?
Of course, this is still a developing situation and just what Musk was attempting to achieve remains unknown. Therefore, it will take some time before the full implication of this event can be realized. Considering the global scale of these tweets, it is clear that they will have a bigger impact on the global economy than on the immediate price of the currency. In the wake of this news, it has been argued that Elon Musk both holds power over the market and can cause considerable volatility in the sector, given the followers of his tweets.
To reduce the impact of potential misinformation within the crypto space, some cryptoanalysts have argued for more rigorous restrictions on tweets that contain certain information. Furthermore, the use of bots in the industry have been a cause for concern, as this approach allows users to respond in a much quicker rate than traditional traders. This could potentially lead to increased volatility, with some speculating more regulation and oversight for the industry could help limit this. Additionally, it has been argued that Musk should take a more transparent approach in his platform with suppliers, customers, and traders to reduce uncertainty.
What can we learn?
On the whole, the events surrounding the well-followed Elon Musk tweet have shone a light on the issues of misinformation, volatility, and market power. Despite the seriousness of the situation, this episode has also revealed some of the potential of cryptocurrencies and its ability to offer users much-needed privacy. This case also provides a valuable lesson to investors: long-term stability is best achieved through proper education and understanding of the market, rather than leaving decisions to an unpredictable personality.
What does this mean for the Crypto Sector?
The consequences of the news have been largely debated and the impact of this event is yet to be seen. Some believe that the added popularity and top-tier recognition of cryptocurrencies will remain, while others argue that the instability of the sector will be amplified without Musk’s influence on Twitter. Additionally, some suggest inaction by government and the wider public to prevent market manipulation by influential individuals might result in a long-term bid with creating more regulation in the crypto space.
In the short-term, though, it is unlikely any progress will truly be made. An in-depth analysis of these issues is still needed and the sector will have to wait and see if this event will encourage this. Furthermore, it is possible that an immense market turmoil in the future might be the only way to prompt better regulations on the activities of industry figures. Consequently, this news has been dubbed a “watershed moment” for the sector and an important lesson learned for the future.
What does this mean for the Average Investor?
The majority of investors remain either unaware of the twists and turns of the market or too slow to respond to them. As such, the most successful investments are likely to come from those who can make well-educated decisions without the influence of opinions, opinions, or misinformation on social media platforms. As such, it is not just important to pay attention to experts’ and analyst’s opinions, but also to focus on facts and insights. Moreover, if any investors are yet unaware of the tremendous power of market influencers, this case is a reminder that they should not be ignored.
Furthermore, it is important for investors to remember that market moves triggered by individuals are unpredictable and therefore volatile in nature. Too often traders rely on simplistic assumptions about simple market indicators, such as supply and demand, but the reality is that the market is much more complex. Rather than taking risks with short-term investments, it is align perfectly for the long-term and the extended upswings and downturns in order to maximize potential profits.
Overall Impact of Elon Musk’s Tweet
Musk’s tweet caused widespread speculation and divided opinion over its impact and implications. It revealed a need for better investor education on the sector as well as possible new regulations as to how individuals can influence and manipulate the crypto market. It has injected uncertainty into the sector, highlighting the risks of markets relying too heavily on public figures. Although Musk’s eventual decision to keep his Twitter account may prevent full chaos, the lesson of this affair should not be forgotten and steps must be taken to prevent future market manipulation.
