CrytocurrencyFinancial marketsWhat impact do big tech CEOs have on Crypto markets?

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Elon musk, Twitter, and crypocurrency.

According to The Economic Times, Elon Musk’s tweets are known for his pronouncements on cryptocurrency. He has amassed a considerable fanbase in the crypto market using Twitter.

In 2014, Elon first mentioned bitcoin to be ‘probably a good thing’ and by 2019, the scepticism around cryptocurrency took a better turn for Elon as he ventured into a more committed crypto journey. He started considering its technology and utility as a potential component of his business models.

Amidst many institutions such as Microstrategy, Square etc., coming forward to invest in Bitcoin as a hedge against inflation, Tesla announced that they had invested in $1.5 billion worth of Bitcoin. Eventually, Elon also tweeted that Tesla will be accepting payments for their cars in Bitcoin too. The announcement came as a big cheer for the crypto community, and many new investors entered the market. An institutional giant such as Tesla backing the game only added to its credibility. Soon after he announced this, Bitcoin reached its then all-time high price of $58,000.

In April 2021,Tesla sold 10% of its Bitcoin holdings, causing panic among investors. Elon responded to this with a tweet stating that Tesla sold Bitcoin only to test its liquidity and that he still holds his Bitcoin investment.

Soon after this, Elon Musk broke the hearts of many investors with tweets that seemed to question the environmental impact of the asset. He sent out a tweet that said Tesla would no longer be accepting payments in Bitcoin owing to the high energy consumption of Bitcoin in the mining process.

This decision sent cryptocurrencies into a downward spiral, and Bitcoin fell to nearly $30,000. When confronted about his stance on crypto, his tweet read, “The true battle is between fiat & crypto. On balance, I support the latter”. In May this year he took to twitter to indicate his support to help miners make their processes greener. Following the tweets, Bitcoin jumped 19% to trade at $39,944.

Following this, Bitcoin and cryptocurrency prices have struggled since the sell-off through April and May 2021 that wiped more than $1 trillion from the combined crypto market’s value. This week Bitcoin and cryptocurrency prices have suddenly surged after a tumultuous week for crypto traders.

According to Forbes , the bitcoin price added around 7% yesterday, while ethereum, Binance’s BNB, Ripple’s XRP and dogecoin climbed between 5% and 10%—pushing the combined crypto market value up by $200 billion since Wednesday 18th August 2021.

The bitcoin and crypto market boost comes after technology giants Twitter and Amazon both revealed they’re taking cryptocurrencies more seriously, adding to an Elon Musk-fueled boost for bitcoin, ethereum and dogecoin prices.

On Thursday 19th August 2021, Twitter and Square chief executive Jack Dorsey, a fierce bitcoin proponent, told Twitter investors that bitcoin will be a “big part” of the company’s future.

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The above account seems to paint a picture that Elon and other big tech CEOs have the power to move the crypto markets with their tweets. And one thing that contributes to this is the fact that cryptocurrency is highly volatile, CNBC  speaking specifically about Bitcoin  wrote that:

volatility is a price that bitcoin investors pay for its limited supply and its lack of a central bank to control that supply — precisely the features proponents say give it value.

So here is three reasons why crypto currencies have volatile prices:

1. Limited supply:

Part of what makes Bitcoin, for example, valuable is the fact that it is scarce. There are18.7 million bitcoin in circulation, which is nearing its maximum threshold of 21 million.

So as a result, the supply of bitcoin is perfectly inelastic. “A rise in demand cannot result in the increase in supply of bitcoin or increase the speed at which bitcoin is issued,”

2. Decentralized market:

There is no central authority which has the power to intervene in the bitcoin market. “No central bank or government can step in to support or prop up markets and artificially subdue volatility,” wrote Ria Bhutoria, former director of research for Fidelity Digital Assets. “Bitcoin’s volatility is a trade-off for a distortion-free market.”

3. Cryptocurrency is very new:

Bitcoin, for example, is only 13 years old . Because bitcoin is still a nascent asset class, it remains in the price discovery phase. ”Which is the most volatile of any asset’s life cycle,” said Mike Bucella, Blocktower Capital general partner.

“Bitcoin has clearly established itself as a new form of value, but the terminal value is still undefined,” continued Bucella. “That information gap lends itself towards a momentum, or technically driven market, absent new information.”

Ross Middleton, chief financial officer of decentralized finance platform DeversiFi speaking to CNBC said Volatility “can actually be a significant draw as the potential for large price movements means that funds can make significant profits with a relatively small allocation compared to the size of their overall portfolio,”

“The longer that Bitcoin moves sidewards in the $30-$40k range,” Middleton added, “the greater the perceived ‘base-building’ and the sooner that new capital will flow into both the asset and the wider crypto market.”

Diana Thuo

Financial Engineering undergraduate with deep interests in Personal Finance and Investment.

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