Elon Musk loves to tweet about cryptocurrencies — and, more often than not, his words move markets.
Last week, bitcoin crashed over 10% after Musk tweeted that Tesla had abandoned plans to accept bitcoin as payment. In conversations with other Twitter users over the weekend, Musk appeared to suggest Tesla had or would sell the remainder of its $1.5bn (£1bn) bitcoin investment. That sent the world's biggest cryptocurrency tumbling even lower.
Are Musk's tweets all above board? This sort of price influence would raise eyebrows in stock markets.
On the face of it, many of Musk's recent tweets about bitcoin and dogecoin (DOGE-USD) — another Musk favourite — have similarities with "pump and dump" scams. Musk tweets bullishly about a token, sending the price higher. The price crashes again when the sentiment turns out to be more hype than reality — or when Musk's jokes on Saturday Night Live fall flat.
There is no suggestion that Musk was intentionally misleading people when he said Tesla would accept bitcoin before abruptly reversing the decision. But the hastiness of the U-turn has led to questions about what went on behind the scenes.
Mati Greenspan, a cryptocurrency analyst at Quantum Economics, called the recent about-face "bewildering".
"This is just Musk being Musk," Greenspan wrote in a note last week. "We've seen him intentionally manipulating financial markets so many times before that it's not even funny."
Musk's use of twitter has got him in trouble before. Musk got into hot water for tweeting about Tesla in 2018. The billionaire tweeted that he had secured funding to take the electric vehicle company private at $420 a share. That was a significant premium to the share price at the time and the stock jumped on the back of Musk's tweet.
The funding never materialised. Tesla and Musk were ultimately forced to settle fraud and securities law charges brought by the US Securities and Exchange Commission. A $40m penalty was paid and Musk was forced to step down as chairman of Tesla.
Public market executives are legally bound to make truthful and not misleading statements about their businesses. Laws govern things like when insiders can buy and sell shares in their own company, how they disclose information to the market, and what must be disclosed.
In the world of cryptocurrencies, no such rules exist.
Watch: What is bitcoin?
While many cryptocurrency exchanges are now regulated, cryptocurrencies themselves are not. Part of the appeal for many investors is that most cryptos are decentralised — no one entity controls them. As a result, no one has authority to pull up Musk for sending bitcoin higher or lower with a tweet.
Similarities exist with regular currency markets. While national authorities can put restrictions on the buying and selling of currencies across borders, they can't stop people from talking up or down a currency.
Where Musk might find himself in hot water is when his tweets concern Tesla and bitcoin. Here the SEC does have authority as it could relate to Tesla's share price.
Tesla investors have cause to grumble. When Tesla first announced its $1.5bn bitcoin investment, the company said it was part of its treasury strategy — corporate speak for managing cash reserves. Fund manager Nickel Digital Asset Management estimated last week that Musk's tweets knocked about $370m off Tesla's bitcoin investment in a single day. The investment still likely registers a positive return due to appreciation in the intervening period but institutional investors could do without this kind of wild volatility.
In any event, it would be hard to build a case against Musk on the basis of his crypto tweets. His influence over bitcoin's price says more about the hyped up market than Musk himself.
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The cryptocurrency world is motivated as much by faith as financial fundamentals and Musk is an almost messianic figure. He is a long-time cryptocurrency believer and many investors think the billionaire can help power crypto to the mainstream by evangelising to his 54 million Twitter followers. As a result, Musk's tweets take on an almost scriptural importance.
Investors pour over Musk's public comments looking for hidden meanings or subtle implications. Bitcoin's price collapse over the weekend was driven by a tweet that seemed to suggest Tesla had sold more of its bitcoin investment. Musk was ultimately forced to respond to the "speculation" and clarify that Tesla hadn't sold. This sort of deep textual analysis — which in this case proved misguided — is common.
Watch: What are the risks of investing in cryptocurrency?
Even the mere act of Musk giving attention to a token can send its price surging. Musk has publicly said that his tweets about the satirical cryptocurrency dogecoin should be taken as a joke. But his public pronouncements still send the price higher. His tweets have helped transform dogecoin from a forgotten token changing hands for fractions of a penny to one of the largest cryptocurrencies in the world, worth over $60bn.
In these instances, Musk might be playing up to his status as a crypto influencer but he is generally upfront about what he is doing. It is the market that is jumping the gun and over-interpreting his words.
Billionaire bond investor Jeffrey Gundlach told Yahoo Finance last week he believed cryptocurrencies were purely "objects of speculation" and likened the market to a casino. Analysts frequently talk about a possible bubble in crypto and US Federal Reserve chairman Jerome Powell has called the market "frothy". The fact that Musk adding '#bitcoin' to his twitter bio is deemed so significant to the price says more about investors than it does about Musk.