Elon Musk's Impact on Crypto: Real or Not

Elon Musk vs Crypto
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You cannot be interested in cryptocurrency and not know Elon Musk. Already famous for being the founder of innovative automobile company, Tesla, Musk enjoys a second fame as perhaps the most famous influencer in the cryptocurrency revolution.

But is this fame earned? Is Musk good for crypto? Does his infamous interventions over the years help or harm crypto's bid for mainstream legitimacy?

The Elon Musk Crypto Effect and influence

If there were a ranking of twitter personalities whose crypto tweets can lead to a wave of buying or selling, Elon Musk would be number one.

Since he suddenly developed a love for bitcoin and certain memecoins in early 2021, a series of Musk tweets have carried BTC to record highs or led it to sharp falls.

In February 2021, Musk announced that Tesla acquired $1.5 billion worth of bitcoin. This news helped propel the premier cryptocurrency to historic highs.

Not done with pumping up the coin through positive news, Musk announced in March that Tesla would start accepting payments in bitcoin. Soon after, bitcoin rose to an all-time high of $64,000.

However, it didn't take long for Musk to backtrack somewhat. Rather than professing undying love for bitcoin, he expressed reluctance at going all-in due to environmental concerns.

In May, he announced a reversal of Tesla's policy to accept bitcoins. The use of fossil fuels in bitcoin mining and transaction does not tally with Tesla's commitment to green energy, he said.

Predictably, the crypto market didn't take too kindly to this announcement. BTC saw a huge dump of up to 27 percent.

Musk and Dogecoin

Unlike his love-hate relationship with bitcoin, Musk seems to have decidedly more love for Dogecoin, the original memecoin, which he has helped to pump repeatedly in the past year.

On February 4, 2021 he tweeted that "Dogecoin is the people's crypto". What happened next? You know the drill. Subsequent tweets have helped to boost the value of DOGE by more than x30.

Musk as the Crypto Apostle

Love him or hate him, it cannot be denied that Elon Musk has helped to increase the visibility of cryptocurrencies in recent times.

Anytime he tweets about his crypto to his over 70m twitter followers, that's a lot of eyeballs. That's a lot of new users, influencers, investors, and venture capitalists learning about crypto. Musk's interest has helped to kindle the flame of cryptocurrency in the minds of millions who otherwise wouldn't care about the industry.

And this can only be a good thing. Despite its current popularity, cryptocurrency is still a young industry. If you want legitimacy, it doesn't get bigger than having the world's richest person in your corner.

Although Musk specifically engages with only bitcoin and his pet projects Dogecoin and Floki Inu, the exposure filters down to the entire industry. The increased attention benefits DeFi, GameFi, blockchain technology and web3.

Since the beginning of 2021, DeFi has enjoyed a massive boom with TVL across the market expanding at an unprecedented rate. The same is true of other sectors like web3 and the metaverse. Even if Musk cannot gain direct credit, his indirect influence in crypto's expansion cannot be discounted.

Musk the Flip-Flopper

Despite his huge following, not everyone thinks that Musk is an overall positive for the crypto industry. He has been accused of everything from being insensitive to manipulating the market to boost his own holdings.

An example was when he announced that Tesla wouldn't implement BTC payments after all. The reasons seemed flimsy, to say the least. How bitcoin worked and the main sources of mining energy were already common knowledge when he announced Tesla's purchase of bitcoin. If he didn't care about energy wastage then, why care about it now. Many observers dismissed it as a convenient excuse to backtrack without losing face.

Another source of anger among crypto enthusiasts is the coins Musk chooses to promote. They point to his continued promotion of memecoins as evidence that he isn't as altruistic as he appears.

Why not promote some innovative decentralized finance project that could do with grabbing the limelight. Or perhaps a new blockchain solution that could solve the ongoing problem of network scalability? Dogecoin and Floki Inu certainly don't seem like most people's idea of good and sustainable projects.

Musk's fixation on joke projects is not going to convince people who think crypto is a glorified pyramid scheme to change their minds. By refusing to change direction, he continues to hurt the sector he seems to love.

Musk the One-Man Market Maker

In an ideal world, the value of a cryptocurrency is determined by the market forces of demand and supply. As demand rises, so does price.

While outside factors like a current government policy, a network hack or whale activity can affect prices, the general trend favors demand and supply as the main variables that shape the market.

Investors should make rational decisions regarding the coins to invest in. Factors usually considered are the market cap, current price, use cases, founder rep, investors' profile circulating, total and max supply, liquidity, community size and engagement.

There are usually one or two additional situational factors. But a billionaire's tweet is not on the list.

Yet when Musk tweets, everyone takes notice. Worse, many rush into risky investments based on his tweets only to be full of regrets when the coin flounders.

The fact that one man can influence the behavior of a big segment of the crypto user base is a problem. Crypto should be about collective power rather than outsized individual influence. The Elon Musk Effect causes short-term volatility. As long as it remains a thing, it could prove damaging to crypto in the long term.

At least Musk seems to have lost some of his power to move traders. Many investors no longer regard his tweets as a deciding factor for their investment decisions.

In an industry whose goal is to decentralize economic power by spreading it among the masses, that can only be a good thing.


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