Talk and Tweets from Elon Musk Send Bitcoin Value Reeling

Elon giveth, and Elon taketh away.

At least when it comes to Bitcoin.

The tweets of the second-richest man in the world, Elon Musk, affect the cryptocurrency market like thunderbolts, driving the price for Bitcoin, the world's leading crypto by market cap, up or down regardless of other market factors.

The manic price swings underscore Bitcoin's evolving—some might say immature —market, and raise questions about Musk's seriousness as well as his understanding of market dynamics.

Elon Musk Dogecoin Bitcoin Tesla Cryptocurrency
Elon Musk said Thursday that he is working with Dogecoin developers "to improve system transaction efficiency." Musk is pictured holding a model of Tesla's Cybertruck in the back of a car in New York City on May 4, 2021. Gotham/GC Images/Getty

"The price drop was almost certainly caused by Musk's influence on the markets via the media," Jason Deane, Bitcoin analyst at Quantum Economics in London, told Newsweek. "He is a tremendously influential but very fickle individual, and his financial success means that certain people, especially those who are new or part-time traders, take his word as gospel."

Musk has about 55 million Twitter followers. There are an estimated 106 million to 135 million Bitcoin users worldwide. Using 120.5 million as the average of the crypto's estimated users, Musk reaches 45.6% of the total.

"Bitcoin is still an asset in its growth phase, which means it can, unfortunately, be susceptible to the opinion of a single individual," Deane said. "Over time, this effect will naturally lessen as the market expands beyond, in this case, Musk's influential reach."

After several ambiguous tweets suggesting Tesla had sold some of its Bitcoin holdings and might dump the rest, Musk tweeted on Monday, "To clarify speculation, Tesla has not sold any Bitcoin."

The crypto's price had fallen below $43,000 Sunday.

A follower called @CryptoWhale tweeted, "Bitcoiners are going to slap themselves next quarter when they find out Tesla dumped the rest of their holdings. With the amount of hate @elonmusk is getting, I wouldn't blame him."

In response, Musk tweeted, "Indeed."

Turkey
The founder of Thodex, a cryptocurrency exchange in Turkey, has been accused of fleeing the country with billions of dollars in investors assets. Here, a woman uses a bank ATM next to a Bitcoin ATM machine at a shopping mall on April 16, 2021 in Istanbul, Turkey. Chris McGrath/Getty Images

In February, Musk drove the price of Bitcoin higher when he announced that Tesla had invested $1.5 billion in the cryptocurrency. But earlier this month, Musk said Tesla would no longer accept Bitcoin as payment for its electric cars.

Critics said it never made sense for anyone to buy a car, a depreciating asset, with Bitcoin, an appreciating asset. Some speculated that Musk's announcement that Tesla would deal in Bitcoin was little more than a deft ploy to grab media attention.

Next, Musk fretted about the amount of fossil fuel-supplied electricity used in Bitcoin mining, but said the company would hold its investment until miners switched to renewable energy sources.

New York-based ARK Investment Management said the entire Bitcoin system, including trading platforms, consumes less than 10% of the energy needed by the world's traditional banking system.

In any case, Musk's due diligence before investing in Bitcoin almost certainly would have turned up the amount of power needed to mine the crypto.

"It is unlikely he is deliberately driving the price (of Bitcoin) down," Deane said. "It is more likely to be a complete indifference on his part to the outcome of his Twitter comments."

Deane said that Musk's comments have backfired.

"He has effectively made statements trying to re-align himself with the 'green' narrative," he said, "but ultimately this hasn't worked out well for Bitcoin, Tesla, or Musk."

For some, Bitcoin's plunge is a HODL moment—Hold On For Dear Life.

"Everyone has been watching (Bitcoin) fall, crashing 35% from all-time highs, just within a month," Justin Chuh, Senior Trader at Wave Financial, a Los Angeles-based regulated digital asset manager, said in a research note.

Justin Chuh, financial analyst, Wave Financial, LosAngeles
Justin Chuh, senior trader, Wave Financial, a regulated digital asset management firm based in Los Angeles. wavegp.com

"Remember gravity and volatility? They exist," Chuh wrote. "Some of the new crypto market entrants are about to have their first taste of risk management. When combining fundamentals such as positive net inflows of (Bitcoin) to exchanges, mixed with the previously mentioned technicals of lower high and lower low, we can ignore what large egos and influencers say, and see that a pullback was bound to happen."

He noted the outsized influence social media has on the crypto market.

"We have to accept that those voices chirping around on social media aren't helping and can actually make moves," Chuh wrote. "This is healthy, but I think we all wish this didn't happen."

A decline of 20% or more is considered a bear market.

Last week, Michael Saylor, CEO of Microstrategy, a Nasdaq listed company, bought the dip and increased the company's Bitcoin holdings.

"If you are a long-term investor, you are likely to be entirely unfazed by the weekend's events and will probably welcome the opportunity to improve your own position," Deane said. "Short-term traders will try and profit from the volatility. In our view, this is a classic market overreaction that will ultimately correct itself. Bottom line: Bitcoin is, by design and practice, far bigger and more important than a single individual."

Those who religiously follow Musk's tweets on Bitcoin will likely ignore bull and bear markets in cryptocurrency. To the easily influenced, the Bitcoin market moves to the Musk Mombo.

In mid-day trading Monday, Bitcoin changed hands at $43,240.94, down 10.53% in the last 24 hours but still up 50.93% for the year. The all-time high is $64,829.14. The market cap is $810.36 billion, CoinDesk reported.

Market Pulse

Falling consumer confidence and rising gas prices won't keep holiday travelers off the road Memorial Day weekend.

The apparent contradiction underscores a desire to get out of the house after COVID-19 locked down the economy and restricted travel for about a year.

Consumer confidence fell this month compared with April as higher-than-expected inflation hit the economy, the University of Michigan reported. Inflation rose at the fastest pace since September 2008 and cut real income expectations to the lowest level in five years.

The Consumer Price Index (CPI), a measure of a basket of goods plus energy and housing costs, jumped 4.2% from a year ago, the Labor Department reported. Analysts surveyed by Dow Jones expected a 3.6% increase. The monthly increase was 0.8% compared with the anticipated 0.2%.

The U.S. Federal Reserve, the nation's central bank, said it expects inflation will rise above the 2% target this year and next, but then will decline.

Federal Reserve headquarters in Washington, D.C.
Federal Reserve headquarters in Washington, D.C. Smith Collection/Gado/Getty Images

"Consumer spending will still advance despite higher prices due to pent-up demand and record saving balances," Richard Curtin, chief economist at the University of Michigan's Surveys of Consumers, said in a report. "This combination of persistent demand in the face of rising prices creates the potential for an inflationary psychology, fostering buy-in-advance rationales and cost-of-living increases in wages."

Consumer spending represents about two-thirds of the U.S. economy.

AAA predicts travel this year will be 60% higher than last year. But much of the gain is a statistical quirk because travel plunged during the lockdown and this year's increase is calculated off a small base.

Nevertheless, about 37 million people are expected to hit the highways, rails and airports May 27-31, AAA said.

"Pent-up demand will result in a significant increase in Memorial Day travel, which is a strong indicator for summer," Paula Twidale, senior vice president at AAA Travel, said in a statement.

The national average for gas prices is expected to edge above $3 a gallon, the highest since 2014. About 90% of holiday travelers will go by car, AAA said.

Still, the 34 million car trips expected this year will be about 9% below 2019's pre-pandemic level.

Hackers shut down the Colonial Pipeline, driving up gasoline prices in the Southeast and creating spot shortages. According to press reports, management apparently paid the ransomware demand and fuel supplies should be normal by the holiday weekend.

AAA said the top five road destinations are: Las Vegas, Nevada; Orlando, Florida; Myrtle Beach, South Caroline, Denver, Colorado and Nashville, Tennessee.

AAA's top bookings are Orlando, Las Vegas, Honolulu, Hawaii, Anchorage, Alaska and Colorado Springs, Colorado.

Honolulu and Anchorage are clearly air travel destinations, and security screenings at the nation's airports are up.

On May 15, the U.S. Transportation and Security Administration screened 1.453 million passengers compared with 193,340 on the same day a year ago. A total of 2.091 million passengers were screened on May 15, 2019, the year before the pandemic hit.

The U.S. Centers for Disease Control and Prevention has said those who are fully vaccinated against COVID-19 can travel domestically without being tested or quarantined.

About 59.8% of Americans aged 18 and above have received at least one dose of the COVID-19 vaccine and 47.2% are fully vaccinated, the CDC said.

In the U.S., the first COVID-19 case was reported on January 21, 2020. Since then, the country has reported 32,923,982 cases, and 585,708 deaths, Johns Hopkins University reported.

The number of new infections continues to fall.