How public people make the crypto market hype

For the past six months, Elon Musk has been shaking the cryptocurrency market. He jokes in public, writes hot tweets, and reflects on the topic on Saturday Night Live. Over the past couple of weeks, Elon Musk and Tesla determined the price movement of Bitcoin (BTC, + 1.45%) and Dogecoin (DOGE + 1.63%) due to some actions.

Crypto owners and other market players are wondering if he tries to manipulate the market. It is worth remembering another example of some recklessness on the part of the Tesla director. For example, in 2018 he paid the US Securities and Exchange Commission a $ 20 million fine for deceiving Tesla stock tweets.

Musk may be overstepping boundaries, but that doesn't matter. What matters is how strong such statements and actions affect the token markets, including the broader issue of impact on the social media market.

Let's see the chronology.

• Early 2021. He leaves a comment on Twitter and the Dogecoin price sets a new record. Also, the rate of growth exceeds Bitcoin at that point. From January 28 to January 29, the value of Dogecoin increased by about 216% to $ 0.023535. Dogecoin became the most popular cryptocurrency in a matter of days.

• February 2021. Tesla and SpaceX CEO announced that they ready to sell cars for Bitcoin. Also, he announced the purchase of Bitcoin by the company for $ 1.5 billion. Bitcoin price skyrockets, and continues to rise for several more months.

• Early April 2021. Musk kicks off Dogecoin's growth again with a few tweets. Dogecoin is getting a spike and sustained growth. Although there were no actual changes to DOGE. However, we see the price increase 130 times over several months.

• May 8, 2021. Shortly before the release of the new SNL episode, the price of Dogecoin jumped again 73%, allegedly due to suggestions that the token will strengthen thanks to Musk's appearance on the show. However, the expected growth was interrupted when Elon Musk called the meme coin a hustle. Just one negative word lowered Dogecoin by over 35%.

• May 13, 2021. On the evening of this day, the CEO of Tesla and SpaceX tweeted that he is "working with the Dogecoin developers to improve the efficiency of system transactions." The price of dogecoin cryptocurrency jumped 14% again and continues to grow.

To some extent, Tesla and Musk's ability to move markets is similar to the power of veteran investors like Warren Buffett or Stanley Druckenmiller. They can lead the markets because people trust their opinion.

But this is almost inevitably a gray area. Bloomberg's Matt Levine articulated the dilemma in the context of WallStreetBets and GameStop.

But he noted that buying stock to raise the price so that other people buy it is a manipulation of the market. Buying stocks in the hope of a chain reaction from other people is normal, although both are similar.

The events that have taken place show that media rhetoric is more influential than the legal issue or the technical capabilities of the token today. Elon Musk can devalue the crypt in one word or make the owners of the same Dogecoin wait for new changes indefinitely. Crypto owners are in a highly vulnerable position and depend on only one media person who can hold billions of dollars in par value.

Many factors affect the cost of a cryptocurrency:

• The usefulness of coins;
• Deficit;
• The value and perceived value;
• Market capitalization (a more important factor in value than the price of an individual coin);
• Mass acceptance;
• Production costs;
• regulations, etc.

However, in recent years, there's a particular influence from cryptocurrency enthusiasts and social media.

Like any currency, cryptocurrencies acquire their value depending on the scale of community participation (for example, user demand, scarcity, or usefulness of the coin). Celebrities who invest in cryptocurrencies and active crypto communities on Twitter, TikTok, and Reddit, can drive the rise of any crypto coin.

Like other media, they can cause significant fluctuations in cryptocurrency prices for better or worse. For example, the case with GameStop is representative, when there was the first and unprecedented case of promoting specific markets through social media.

Potentially honest information (such as the latest news about a major digital currency exchange hack) can lead to a significant value drop. For example, the value of bitcoin fell by 20% after information about the hacking of the Bitfinex exchange (Hong Kong).

But in general, the activity of the crypto community is worth paying attention to. You can even invest in the fastest growing crypto assets at a particular moment, but this strategy is very short-term. Use it very carefully.

According to Tom Mavis, professor of marketing at New York University's Leonard N. Stern School of Business, regular checking of stock prices is a boring task. He thinks that Bitcoin is an exciting exception to the rule due to the constant flow of news. Price can be different all the time even if you check it 10 times a day.

Thus, the Internet and social media can significantly influence the behavior of retail investors. Research has shown that when people talk about their online social investments, they tend to become more risk-averse in the types of investments they make.