At the start of 2021, Elon Musk had the cryptocurrency market under his control.
A single tweet about Dogecoin from the Tesla and SpaceX founder caused its price to spike by 50%. For a time, it seemed as though Bitcoin's price movement depended on the opinion of the world's richest man.
Musk isn't the only figure to have moved the crypto market for no apparent reason other than an endorsement: From meme coins to NFTs, large swaths of the industry have proven highly responsive to celebrity endorsement.
Inspired by Jeff Wilser’s profile of Musk for CoinDesk’s “Most Influential People of 2021” series, we look at the role social media and celebrities play in the cryptocurrency market and how that has changed over the year.
While trying to gauge the exact impact of a single event on a market is often futile, the correlation between Dogecoin's rise and Musk's praise is undeniable: While other billionaires (such as Mark Cuban) and celebrities have jumped on the Dogecoin bandwagon, it was Musk who was the most outspoken in his attempts to turn the dog cryptocurrency into a meme: “To the Moon.”
Musk eventually weighed in on the Bitcoin debate, and Tesla played a key role in price movements throughout the spring: Tesla's public announcement of its purchase of BTC, its acceptance of BTC as payment, its eventual sale of some of its BTC holdings, and its reversal of the BTC payment all had a major impact on the market, amplifying the cryptocurrency's already considerable volatility.
On February 8, Tesla announced it would buy $1.5 billion worth of BTC, causing the price to soar 19.5% from $38,850 to $46,400 by the end of the day. Although the amount of BTC Tesla bought and used to purchase vehicles was relatively small compared to the daily trading volume of the almost $1 trillion asset, it dominated market talk for months. On May 12, another kind of “Elon effect” occurred when the CEO announced that Tesla would no longer accept BTC as a form of payment. The market had already fallen significantly from its highs several months prior, but this tweet was the final blow, causing the price of BTC to fall from $56,800 to $49,500.
But Musk's influence on price has diminished over the course of the year. Has the market gotten stronger, or have participants simply grown tired of Musk's talk? Has the billionaire worn out his welcome, or has the market become more rational? BTC was able to endure a three-month bear market over the summer without Musk's constant support, and recapture its April highs this fall. DOGE has fallen from grace, and the “Dogefather's” latest Dogecoin-themed tweets have struggled to galvanize the market.
That was the case until Tuesday morning.
The chart below uses data from TradingView to track Musk's impact on DOGE price over time.
Either way, there will continue to be celebrities and Twitter accounts stoking FOMO (fear of missing out).
The power of social media in the cryptocurrency market is a testament to the general lack of regulation and maturity, as well as the inherent liquidity of permissionless assets 24/7. For example, non-fungible tokens in their current form are essentially “tradable cryptocurrencies” with features (bespoke assets, low liquidity, anonymous participants) that make their price easily manipulated through fake “wash” transactions. So when pro basketball star Stephen Curry purchased an NFT from the popular Bored Ape Yacht Club collection, the average selling price of this virtual commodity nearly doubled in the following months.
The market will likely continue to mature with further regulation and innovation, and if so, the influence of celebrities, as in the case of Musk, will continue to diminish. Crypto natives are still very fond of the occasional meme coin, but blockchain technology has shown its potential, attracting real investors and multi-billion dollar institutional investors.
The cryptocurrency abyss will likely remain the Wild West, but hopefully we’ve already seen the worst of it.
