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Twitter is a powerful tool for moving cryptocurrency prices. At least, if you are Elon Musk.
Dogecoin’s price jumped more than 10% at one point last Friday after Tesla’s CEO tweeted that Tesla merchandise can now be purchased with the meme coin.
It was not the first time that Musk’s words moved the price of Dogecoin. His Twitter comment in July that a Dogecoin update could give it an edge over popular cryptocurrencies Bitcoin and Ether, and Musk’s posting of a meme in April, also boosted the coin’s price. even. And of course, there was that Saturday Night Live performance when the cryptocurrency’s price plummeted after Musk called it a “hustle.”
Musk’s company has become a cult stock, and when the billionaire takes actions like checking his Twitter followers on whether or not he should sell 10% of his Tesla shares, everyone is talking on social media. It is therefore not surprising that he also has an outsized influence in the crypto community.
But what does the way the market reacts to every word of Musk about these crypto investments really say?
“Meme coins’ volatility and vulnerability to gratuitous tweets make them a dangerous place for investors,” Georgetown University finance professor James Angel told Money via email. These are not investments in projects that generate predictable cash flows, he adds. “These are speculative games of musical chairs.”
The fact that Musk could tweet one thing and drive the price of Dogecoin up or down is proof that meme cryptocurrency is a more risky and volatile asset than cryptocurrencies like Bitcoin, says NYU associate professor Hanna Halaburda Stern School of Business.
In general, currencies derive their value from the expectation that someone else will accept the currency in a transaction or buy it at the same price or at a higher price. Traditional currencies, such as the dollar, can see their value impacted by inflation or central bank movements. But with cryptocurrency, there is no underlying value with price movements that we can similarly predict, says Halaburda.
“They are even more dependent than any other asset solely on market beliefs,” she adds.
Those beliefs can be heavily affected by something insignificant, like a seemingly off-the-cuff tweet from Musk in the wee hours of the morning.
Musk’s comments have also been known to rock the price of Bitcoin, such as when he tweeted that Tesla would no longer accept Bitcoin last May. But meme coins, like Dogecoin and Shiba Inu, are even riskier than more popular cryptocurrencies like Bitcoin and Ether, which have far more investors involved, Halaburda says.
Bitcoin has a market value of nearly $800 billion. It continues to be accepted by more and more businesses as a form of payment and can now even be purchased at Walmart. Meanwhile, Ethereum, the network on which Ether runs, has more of a purpose, some experts say, as a platform that helps verify and store financial transactions without a third party like a bank.
Dogecoin has no attributes like these, adds Halaburda. Either you trade it or you don’t trade it.
“It’s much harder for one person or even a few to affect the price of Bitcoin as much as it does the price of Dogecoin,” she says. “And that makes Dogecoin much more volatile.”
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More money :
A beginner’s guide to Dogecoin, the cryptocurrency that started out as a joke and is now worth billions
The ‘It’ Factor of Cryptocurrency: What Makes a Coin Like Shiba Inu Blow Up
Bitcoin price plunges. This is actually a sign that investing is going mainstream
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