How seriously should investors consider the impact of Elon Musks tweets on cryptos? – Mint

Bitcoin was created in 2009 and in the next 11years, Elon Musk did not show any interest in the virtual currency. Then one fine day in early February 2021, he announced that Tesla bought coins worth $1.5 billion. This helped the cryptocurrency go through the roof, making it reach historical highs soon afterwards. This is now known as the Elon Musk effect in the virtual currencies market.

In the first week of October this year, the dogecoin spinoff Floki Inu coin jumped 30 percent after a tweet from Elon Musk. Musk has a dog named Floki, which is a Shiba Inu, a Japanese dog breed.

This is not the first time that Elon Musks tweet left crypto investors perturbed.

In March 2021, Musk stated I am getting a Shiba Inu". On June 25, he tweeted My Shiba Inu will be named Floki. Then on September 12, he tweeted Floki has arrived with a picture of his dog sleeping on the rug. As a result of these tweets, Floki Inu rose by 1,000 percent by Sep 15.

So, in a span of three days, the currency rose by 10 times as a result of Elon Musks tweet.

The Musk effect

In February this year, when Musk announced that Tesla bought bitcoins worth $1.5 billion, the cryptocurrency rose by 20 percent in one day.

On Feb 4, he wrote Dogecoin is the peoples crypto, causing a sudden jump of 50 percent in Dogecoin in one day. Overall, Dogecoin has seen a jump of 15,000 percent in one year thanks to a number of tweets by Elon Musk expressing his support.

In March this year, Musk announced that Tesla would accept payment in bitcoins, following which the currency rose to an all-time high of $64,000 the following month.

However, soon after he warmed up to bitcoins, he announced his aversion prior to his new-found love in Floki.

In May, Musk announced that the electric car maker Tesla would not accept bitcoins because of environmental concerns. He wrote on Twitter that he was concerned about rapidly increasing use of fossil fuels for bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.

He admitted that bitcoin was a good idea but it cant come at great cost to the environment. Soon after the tweet, bitcoin fell by 10 percent.

The numero-uno crypto currency saw a major correction of 27 percent after this announcement. Dogecoin also saw a decline of around 20 percent the same month.

Cautionary tale

Since crypto currencies are fairly volatile, such cryptic remarks, flip flops and impulsive buys add fuel to the fire. A short-term investor can ride the wave to exit the market soon afterwards. But if you want to invest in cryptos for a long time, it is not advisable to buy and sell on an impulse.

For instance, bitcoins may have risen to over $64,000 in April but they were trading for $50,000 in October. So, if you are in the crypto market for a long time, you can ignore the noise, keep your head low and wait for the right opportunity to exit.

We can summarise that Elon Musks tweets tend to impact the price movement of crypto currencies but buying and selling a currency as a result of another investors tweet (albeit a billionaire) is not a rational investment decision.

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How seriously should investors consider the impact of Elon Musks tweets on cryptos? - Mint