Elon Musk hints that Tesla may dump its billion dollar Bitcoin investment — here’s why his tweets have so much power
- The prices of the world’s most popular cryptocurrency dropped to under $45,000 for the first time in the past three months
- While Tesla’s disinvestment is unlikely to happen soon,
Bitcoinprices dropped by over $10,000 last week
- Tesla cited environmental concerns with the use of fossil fuels for the move and said that it will be selling its own Bitcoin holdings when mining is more environmentally sound.
The move happened after Musk’s response to a tweet suggested that the company might be dumping its $1.5 billion
While Tesla’s disinvestment is unlikely to happen soon, Bitcoin prices dropped by over $10,000 last week after Musk’s Tesla announced that it won’t be accepting the digital currency for making payments for its cars. Tesla cited environmental concerns with the use of fossil fuels for the move and said that it will be selling its own Bitcoin holdings when mining is more environmentally sound.
Why do Musk’s tweets affect crypto prices so much?
Think of what gives value to our regular currency. Of course, the fact that they are backed by physical assets matters, but for regular users, the mere fact that the government issues them, and that they’re accepted universally, is what gives currency relevance, credibility and value.
Credibility is exactly what cryptocurrencies gain when companies like Tesla say they will accept them. Payments company Mastercard has also said it will start accepting Bitcoins on its network later this year. All this combined with tweets from billionaires like Elon Musk and Mark Cuban raises the value of crypto as assets, pushing more and more users to rush towards them.
However, while the stock market is an age old system established over decades, crypto is purely technology. As a result, the barriers to entry are a little higher and not everyone understands how they work. This means that retail investors are forever unsure of their investments. They may be investing big amounts, but they want to play safe.
As a result, just like a tweet in favour of crypto from Musk can drive the price up, a tweet against it can drive the price down too. Tesla’s rollback of its crypto plans tells investors that even credible individuals like Musk aren’t sure about cryptocurrencies. After all, it’s no secret that crypto is mined using fossil fuels. How could Musk not know that before?
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