Elon Musk’s tweet shifts the crypto market, but he’s wrong this time

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What happened

Being a decentralized market and generally outside the purview of regulators, the crypto market is perhaps more susceptible to hysteria. Sentiment is behind a significant portion of the returns crypto investors have seen in recent times. So far, the majority of capital has flowed in support of this sentiment.

However, a recent tweet from Elon Musk calling the crowd at Web3 seems to have struck a chord yet again.

Image source: Twitter.

Early Saturday morning, the crypto market collapsed, pushing down most of the major cryptocurrencies.

This price action did not spare major Web3 cryptocurrencies such as Polkadot (DOT -15.21%), Filecoin (FIL -18.31%) and Kusama (KSM). Each of those tokens was down more than 10% as of 9:30 p.m. ET.

Image source: Getty Images.

So what

Elon Musk’s Twitter account currently has over 65 million followers. While the CEO of Tesla claims not to advertise, it could be argued that social media has provided more than enough publicity for the richest man in the world.

This year, Mr. Musk has shifted much of his attention from social media to the crypto world. Previous shiba inu tweets pushed the price of Dogecoin and Shiba Inu into the top 10 cryptocurrencies by market cap, until this recent drop.

This recent hit on the folks at web3 stands in stark contrast to his previous tweets, which could be seen as supporting the global crypto movement (at least in the token space itself).

Now what

It is debatable whether Mr. Musk is walking the right track with his market-shaking tweets, or whether he is simply asserting his right to free speech. It’s a fun discussion for another time.

It is also questionable to what extent Elon Musk affected the valuations of these web3 cryptocurrencies with his tweets. After all, many larger cryptocurrencies have fallen much more than Polkadot, Filecoin, and Kusama today.

However, the fact that Musk shot the folks at Web3, while (intentionally or unintentionally) increasing the valuations of dog-themed cryptocurrencies, could be a very dangerous take for investors.

In this case, it’s probably best to view Musk’s recent tweets as rambling opinions rather than speculative buying opportunities. Let’s give him the benefit of the doubt that he’s not actively trying to manipulate the prices of digital assets.

Sentiment has so far been behind much of the price action in the crypto space. However, a change seems to be underway, with capital focusing on higher value-added projects, such as those in the web3 space.

As a result, it’s probably best to ignore the noise and move on.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Questioning an investment thesis – even our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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