When does a social media comment influence the market?
Probably when Elon Musk, the CEO of Tesla posts a tweet
So…what happened?
Tesla buys Bitcoin with a reported $1.5 billion investment adding it to the company balance sheet. Elon Musk posts a tweet and Bitcoin surges even higher from its already lofty elevation. It holds for a day or two then falls back dramatically following another tweet from Musk only this time the tweet suggesting the Bitcoin value is too high!
Bitcoin then basically crashes from an all time high in a brutal spiral that saw prices fall from around $58,000 to $47,000 in just a few hours. At one point, prices plunged $5,000 in just 10 minutes
Acceptable?
What is all this about? What does it mean for the market? Is this potentially a kind of market manipulation? Is it acceptable to play with markets and money like this? The influence some ‘players’ have will move shares and push market values around, but is this acceptable?
We have witnessed it with Donald Trump. A tweet here and there would influence and move the market. It was suggested that he most likely related his personal success to the value of the Dow Jones Industrial Average and other market numbers (as long as they were high), more than policy.
Game Stop et al
We saw it more recently with users of the Reddit platform egging on the company Game Stop via the Robinhood trading app pushing its value to dramatic and unrealistic highs – only later to crash back. We saw this again with silver pushing the price up to over a four year high, only to again fall back to more normal levels. The share price was artificially inflated to massively unrealistic levels that bore no resemblance to true value.
At the time all this occurred it was being portrayed as being about the ‘retail’ investor collectively taking on the hedge funds and institutional investors and traders. But was it? Policy makers didn’t like it eitherway. There was an unsubstantiated report circulating shortly after all this happened suggesting that the financial system was strained and apparently close to failing…? The CEO’s were later hauled over the coals to explain what went on!
Right or Wrong?
Whatever the reason and however it manifests – it simply cannot be right for wealthy individuals or even ‘packs’ of hungry retail traders to have that much influence on share price movement via social media platforms or any other system or method. It has to be wrong for anyone, collectively or individually to have the power and influence to manipulate the market for self benefit. It’s playing with the system, and it, in my opinion, sets a dangerous precedent.
The correct way
I’m more than happy to accept the latest breaking news from company ‘Nuts and Bolts Inc.’ about their new widget making machine that will revolutionise the manufacturing of wicked widgets, as this is a benefit created by a business sharing its invention to encourage investment.
Shouldn’t this be what we invest in – a company’s achievements. Not indirect potential market manipulation encouraged by a social media message?
Note from an analyst
It was noted by an analyst that the profit generated from the Tesla Bitcoin purchase was greater than the profit made from selling the cars in the previous financial year. I don’t know if this claim was correct or not but it doesn’t seem that unlikely given the size of Bitcoin movement after Musk’s tweet.
It’s ironic really
The irony is that almost as soon as the benefit was achieved from Musk’s Bitcoin tweet another tweet of his arrived suggesting Bitcoin was very high and this subsequently unravelled the gain from the original tweet and more besides.
I’m labouring my point here about potential manipulation -it cannot be acceptable behaviour to influence markets in this way, for good or bad?
Bitcoin is highly volatile and is not green
The market was probably overdue a technical correction after such a massive and sustained move. A further drop of around 30% could see prices back to $40,000 (still very high). I note the now U.S. treasury secretary, Janet Yellen warned that, ‘Bitcoin is an extremely inefficient way of conducting transactions and the amount of energy that’s consumed in processing those transactions is staggering’.
I’ve seen it reported that Bitcoin uses as much energy as a nation of 200 million people. Staggering!
Tesla shares drop
Tesla shares fell around 8.50% finishing under its 50 day simple moving average. Company hares are now down over 17% since reporting it had purchased around $1.5 billion in Bitcoin to hold on its balance sheet.
The fall in Bitcoin may have dragged the stock down further. Options and technical market activity have also been signalling a sell-off soon likely due for Tesla and all this despite the recent social media market comment.
So, is this potentially a form of market manipulation – I think it might be – it isn’t good either way you look it.