The Tesla and SpaceX billionaire has sent Dogecoin and Bitcoin on a roller coaster this month—and exposed weaknesses in the cryptocurrency market along the way.
LAST WEEK, WHEN Elon Musk tweeted that he had spoken with the team of Doge developers about how to make the coin more efficient, the impact was predictable: It sent the price of Dogecoin to the moon. It was just the latest in a series of Musk declarations that has sent the viral coin on a roller coaster over the past few weeks.
And yet it caught Doge’s core development team by surprise, says Michi Lumin, a Colorado-based developer who helps maintain the cryptocurrency. Yes, the Tesla and SpaceX billionaire has been “spitballing ideas” with the team for some time, Lumin says, including about how to make Dogecoin more efficient. They welcomed his input. But he says the intense spotlight from Musk’s recent string of Doge-boosting and Bitcoin-bashing tweets has been a little stressful, inviting scorn from critics who see Doge as merely a joke and sending the market into convulsions. Their coin might be based largely on hype, but they had planned to remain discreet.
“We’re not Eloncoin,” he says. Except, it seems, for whenever Musk decides to tweet.
Musk’s influence is not limited to Doge. Last week, Musk also tweeted that, due to climate concerns, Tesla wouldn’t accept Bitcoin in exchange for cars, three months after he first said that it would. Good on Elon. As WIRED has written about numerous times, Bitcoin uses enough energy to power a mid-size country, and a sizable (though vigorously contested) portion comes from fossil fuels like coal. The big mystery is why this wasn’t an issue to Musk only a few months before. Maybe it’s a green marketing move or some kind of regulatory preempt. Or perhaps it’s just a troll meant to make us all contemplate the worth of things for tautology’s sake.
Whatever the rationale, Musk is creating and destroying small fortunes, 280-characters at a time. “It seems very scary and deeply irrational,” says Jill Carlson, a blockchain-focused investor at Slow Ventures. When Musk first announced Tesla would take Bitcoin for cars—and that the company was buying $1.5 billion worth of it—he sent the value spiking. When he backed down last week, the news erased $300 billion from the market within minutes. His subsequent denunciations over the weekend, including a Sunday tweet that suggested Tesla may have already offloaded its Bitcoin holdings, sent the price still lower. (He later clarified the company hadn’t sold.)
Meanwhile, his periodic tweets mentioning Dogecoin, usually heavier on jokes than substance, send that market into fits of exuberation—though last week he went on Saturday Night Live and called it “a hustle,” so it tanked, until he single-handedly brought it back to life with the greenification tweet.
“I’m not comfortable with any one person or small entity being able to manipulate the market. I guess that’s where we are in crypto right now,” says Lumin, the Doge developer. “It’s not great, that’s for sure.”
Perhaps it’s five-dimensional chess, or maybe it’s just whimsy. After all, Doge is a slightly weird choice to champion as an eco-friendly alternative. It runs on a similar, energy-intensive system to Bitcoin’s, and there are plenty of cryptocurrency alternatives that use cleaner methods, none of which merit mention on Musk’s Twitter feed. Over the weekend, he suggested that if his Dogecoin plans didn’t work out, he would create a cryptocurrency from scratch himself. “He seems to be primarily motivated by his own entertainment on the Dogecoin front,” Carlson says. “He goes wading into these big problems and then sets it up so he can enter as the hero.”
Musk may have imperfect control over his own influence. Crypto investors had time to plan for his SNL appearance, for instance, drumming up the price in anticipation and then quickly selling when it was mentioned on air. (A classic investment trope: Buy the rumor and sell the news.) His tweets, however, drop from the sky without warning. He controls the narrative, and thus the market effect. “He had to know that this was going to be viewed in a negative light,” says John Sedunov, a professor of finance at Villanova University, about Musk’s Tesla announcement.
“It seems very scary and deeply irrational.”
-Jill Carlson, Slow Ventures
Still, this isn’t just a crypto thing, Carlson says. With the rise of app-based tools that let anyone buy and sell stock at a moment’s notice, retail investors have increasingly looked to certain influential people for signals on what to buy and sell. For Tesla stock, Musk is required to tweet things that are true and don’t preview confidential information. (Musk settled with the Securities and Exchange Comission for violating those rules in 2018). But with public companies he does not own or run, there is less restriction. A January tweet affirming his love for Etsy sent the stock up 9 percent. Could he single-handedly tank the same stock in 280 characters? That’s unclear. But he’s up there with a small number of people—think Warren Buffet, or Federal Reserve chair Jerome Powell—who have this kind of power. And he certainly wields it much more loosely than the others in that echelon.
To complicate matters further, Tesla is still sitting on a pile of Bitcoin. “I think there’s a question about whether it is legal and it is ethical for someone we know is taking positions in a market to be tweeting and speaking publicly to move markets,“ Carlson says. But it’s tricky. Barring explicit fraud, it’s hard to keep market-moving tweets in check. “You can’t police based on what you think is somebody’s subjective heart-of-hearts intent,” says Benjamin Sauter, a lawyer at Kobre and Kim who specializes in cryptocurrency.
And the thing is, Bitcoin and Doge aren’t like stocks. Legally, they’re treated as commodities, like gold, and sometimes they’re used as currencies, like dollars. Both have fewer rules governing how people talk about them. “Tesla has dollars too,” Sedunov notes. “A CEO is not going to get in trouble for saying Jay Powell should change interest rates because our dollar could be weaker or stronger.” Those markets are also, in theory, supposed to be harder to swing. Unless that hypothetical tweet came from Powell himself, it probably wouldn’t have any impact.
Part of the rationale for treating cryptocurrencies differently than stocks is that they are “sufficiently decentralized,” not beholden to a particular group or private entity in the way that stocks are. But in practice, decentralized networks have their own forms of centralization. Crypto markets have long been dominated by so-called whales with vast holdings, who can move markets when they buy or sell. And now, a growing number of institutional investors like banks and corporations like Tesla joining in means there’s a whole new set of influencers like Musk, who can move markets with a tweet—like the one on Sunday that said Bitcoin was too centralized. Meta!
“This tells you about where we stand on the question of whether this is suitable as a store of value,” Sedunov says. “The answer is: maybe not. The jury is out on when and whether we get there.” Cryptocurrencies are in their awkward, gangly teenager phase—easily influenced and, sometimes, easily bullied