Bitcoin, dogecoin, and other digital currencies have seen their prices plummet by more than 40% in recent weeks. While Elon Musk isn’t the sole cause of the crypto meltdown, he isn’t helping matters.
Musk’s behavior has cryptocurrency bulls wishing he would stop tweeting and focus more on building cars instead. Whether joking that dogecoin is a “hustle” on “Saturday Night Live” or having his epiphany that bitcoin mining may not be good for the environment, Musk’s behavior has cryptocurrency bulls wishing he would stop tweeting and focus more on building cars instead.
Bitcoin (XBT) supporters are fed up with Musk wielding so much power over the near-term price movements of all cryptocurrencies.
“People who followed Musk blindly have lost a lot of money. They may have gotten burned and never come back,” said Alex Mashinsky, CEO and founder of Celsius, a crypto lending platform that offers digital tokens as rewards to customers — similar to a publicly traded company paying a dividend.
“The crypto community needs to be more responsible in how it explains these assets and the risk,” Mashinsky added. “Pundits kept saying we’d never see a down market for bitcoin again because of institutional interest, Square and PayPal, etc. When you hear that, you have to worry.”
The fact that all cryptocurrencies have been rising and falling with bitcoin and dogecoin has irritated investors and analysts, in part because Musk has made contradictory statements about them. To put it mildly, some crypto investors are irritated that a comment from Musk can cause such a price swing.
“Musk is very calculated,” said Eloisa Marchesoni, a cryptocurrency consultant and angel investor. “Everyone is enraged.”
Musk’s views on bitcon, dogecoin, and other cryptocurrencies have elicited no response from Tesla. Musk, on the other hand, hasn’t been silent on Twitter, and he appears to be bullish for the time being.
Musk shared a parody of the famous “Jaws” movie poster in a tweet early Monday morning.
The hapless swimmer about to be attacked was replaced with a crumpled dollar, and the infamous shark was replaced with a giant dog. At the top, DOGE was written in large red letters with the caption “You’ll Never Use the Dollar Again.”
Musk also responded to a Twitter follower on Saturday who asked him: “what do you think about the peeps who are angry at you because of crypto?” Musk said that “the true battle is between fiat & crypto. On balance, I support the latter.”
The sell-off isn’t solely due to Musk. Fears of stricter regulations in China (where many bitcoin mines are located) as well as the possibility of higher taxes on cryptos in the United States are also contributing to the decline.
However, Musk’s constant mentions of cryptocurrency may be perplexing to some investors.
They may be unaware that bitcoin, which many investors regard as a sort of inflation hedge (aka digital gold), and Ethereum, the second most popular crypto, have different use cases. Ethereum’s blockchain is used for many non-fungible token (NFT) transactions, which are becoming increasingly popular in the art and collectibles world.
You’ll have a hard time convincing anyone that dogecoin and other joke currencies like shiba inu coin are necessary for anything.
“I still don’t understand what Musk’s perspective on dogecoin is and I don’t think the world does either. Why does he think it’s valuable?” Megan Kaspar, managing director of Magnetic, a cryptocurrency investment firm, echoed this sentiment.
“Institutional investors are very thoughtful and are not buying dogecoin just because Musk is pumping it. But retail investors, who are not doing this for a living, may not be,” she added.
Marchesoni advised long-term investors, or “HODLers,” to ignore Musk and concentrate on bitcoin, ethereum, and other prominent coins such as cardano and XRP.
“There is nothing to be worried about if you are a HODLer,” Marchesoni said. “But if you are a small investor, you are going to get burned unless you stay away from the meme coins.”
“The bubble will burst. It always happens with new assets. It will pop and we’re not yet at the climax,” she warned.
Casual investors may soon tire of the volatility in cryptocurrencies, according to Mashinsky, the founder of the Celsius crypto lending platform, leaving only long-term bulls who love that, unlike paper currencies, digital money is not subject to the whims of government-backed central banks.
“We’re getting a flushing out of all the crypto tourists,” Mashinsky said. “Many of them are not here buying because they believe in financial freedom or long-term diversification. They’re just trying to make a quick ride.”
As a result, some experts are advising investors to consider “stablecoins” like tether, USD Coin, and Binance USD. As a way to hedge their bets, these are cryptocurrencies pegged to the value of the dollar, euro, and other forms of fiat money.
“Stablecoins are asset-backed, so there is less volatility but they can help mitigate inflation pressure,” said Ken Nakamura, CEO of GMO-Z.com Trust Company, which launched the world’s first regulated stablecoin that is pegged to the Japanese yen.
But make no mistake: compared to stocks, bonds, physical commodities, and currencies, Bitcoin and other cryptos are still relatively new assets. For the foreseeable future, most cryptocurrencies are likely to be volatile investments, especially if Musk does not put his phone down.
“There is headline risk for cryptocurrencies and Musk is the poster child for that. What he says still matters…at least for now,” said Ed Egilinsky, managing director and head of alternative investments at Direxion.
“Investors have to consider why they are buying. Hopefully, it’s to diversify,” Egilinsky said. “But there’s not a long enough history to say that bitcoin or others are at true inflation hedge. This is still more like speculative momentum trading.”
