Why the markets can ill afford to ignore Elon Musk’s tweets

The Tesla chief executive's outsized influence on Bitcoin will deter most investors from putting money into the cryptocurrency

Tesla’s decision not to accept Bitcoin triggered a 17 per cent slide intra-day at one point, a huge drop in value for an asset worth more than $1 trillion. Getty
Tesla’s decision not to accept Bitcoin triggered a 17 per cent slide intra-day at one point, a huge drop in value for an asset worth more than $1 trillion. Getty

Social media plays a major role in our daily lives, helping millions to keep up with trends in everything from fashion to music to markets. In the same way that influencers sway the minds of younger generations, those in positions of power can also influence the thoughts of millions.

The tweets of former US President Donald Trump are one such example of how social media can move governments, policymakers and markets.

For the record, Mr Trump is reported to have sent out 57,169 tweets in his 11 years on the platform across a spectrum of issues – making threats of nuclear annihilation, supercharging anti-lockdown protests and giving the world a new word, “covfefe”.

For financial traders, he also showed he was willing to influence all manner of markets, from oil to General Motors and his daughter’s fashion line at a well-known retailer.

Wall Street experts created a bespoke index to monitor Mr Trump's influence on interest rates while the Bank of America analysed the after-effect of his tweets. It found that the stock market rose when Mr Trump was active less than five times in a day but fell when he was very active and tweeted more than 35 times in a single day.

More recently, Elon Musk, the pioneering billionaire behind Tesla and SpaceX, seems ready to fill the void left by Mr Trump, at least as one of the most divisive people on Twitter and certainly one that financial markets are having to pay a little more attention to.

There is no doubt that Mr Musk’s combination of real-world power as the third-richest person in the world plus his growing fan base of more than 55 million Twitter followers, less than Mr Trump’s 88 million, give him a huge amount of influence.

We note that Mr Musk has “previous” experience in influencing markets. In 2018, he tweeted that he was considering taking his electric car company private at $420.

This caused Tesla’s stock price to jump more than 13 per cent and attracted the ire of the US financial market regulator, which forced Mr Musk to pay a fine and banned him from serving on the company board.

Tesla’s volte-face is perhaps understandable when one thinks of the environmental impact from the Bitcoin mining process

Hussein Sayed

Far from being put off from tweeting about markets, Mr Musk, who is worth about $162 billion, has continued with his thoughts on cryptocurrencies. After Tesla announced that it had invested $1.5bn in Bitcoin in February, the cryptocurrency increased by 15 per cent.

From fully throwing his weight behind the digital currency, Mr Musk and Tesla recently performed an about-turn and suspended the company’s plans to accept the most well-known cryptocurrency as payment for its vehicles.

This kind of unpredictability on Twitter was often a criticism aimed at Mr Trump. However, Tesla’s volte-face is perhaps understandable when one thinks of the environmental impact caused by the Bitcoin mining process. The super computers, which run mega-complex calculations to create new coins, are estimated to generate more carbon dioxide emissions than Singapore.

In a world where environmental concerns are at the forefront of investing for the foreseeable future, there seems to be no room for a move into this cryptocurrency.

But there are other issues which stem from Mr Musk’s direct form of communication and the effect those social media platforms have on financial instruments. Tesla’s decision not to accept Bitcoin triggered a 17 per cent slide at one point, a huge drop in value for an asset worth more than $1 trillion. A further tweet suggesting Tesla may be considering or may have sold off its Bitcoin holdings also caused a significant drop in price.

Bitcoin supporters say it is an asset that should be viewed as an alternative store of value. Yet, its inherent volatility precludes most investors from putting money into it.

Price stability is a core requirement of major currencies, so this type of instability is not conducive to mainstream fund managers. The line between investment advice and opinion appears to be blurring, with regulators slow to keep up with social media.

Meme stocks and discussion forums kicked off this year with notable volatility. We can expect more blow-ups from time to time while Mr Musk is logged on and tweeting.

Hussein Sayed is the chief market strategist at FXTM

Published: May 26, 2021 07:30 AM

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