The Elon Musk effect is the informal term given to the Tesla CEO’s amazing power to cause price changes in the cryptocurrency markets by making short public statements, usually via his preferred social media accounts. But for active investors and traders, there are plenty of questions about this phenomenon, and not just as it related to Musk.
Indeed, his 50 million-plus Twitter followers put great stock in his opinions about bitcoin, dogecoin, and the future of electric vehicles. But, there’s much more to the Musk effect than that.
Investors and Traders, Take Note
If you’re a careful investor, you look at the big picture. So, when someone like the CEO of Tesla Motors, the President of the U.S., or a major celebrity starts talking publicly about cryptocurrencies, add those pronouncements into the mix of all factors that could affect the prices of whatever is in your portfolio. The main thing to keep in mind is that it pays to watch social influencers. Whether they know what they’re talking about or not is not the issue. If you are interested in crypto trading or plan to be, consider the following points about other sources of price movement. Many are similar to Musk’s and others are not.
Who Else Has the Effect?
Stop for a minute and think about whose public behavior can lead to ups and downs in the alt-coin markets. In addition to corporate leaders and celebrities, as noted above, many others can impact short-term prices. Few people can induce long-term results, however. For starters, heads of government agencies tend to be major movers and shakers in all sorts of niches, particularly when their entity has regulatory control over cryptocurrency trading. One example includes U.S. senators on the government finance committee. They make rules for banking, trading, and virtually activity that affects the national economy. That, of course, includes bitcoin and the rest of the alternative currency sector.
If you hold a large amount of BTC, for instance, it’s in your best interest to closely monitor the changing landscape of U.S. tax laws about how those assets are treated. This is an example of the Musk effect on the part of the government, and it comes into play no matter where you live. Laws in Europe, Asia, and India all have profound importance for anyone who holds cryptocurrency in their portfolios.
Another consideration, in addition to monitoring governments and industry influencers, is the direction of price moves. Up to now, most cases where a single individual promotes a particular coin have led to positive swings in price, namely upward. This has been true for both bitcoin and dogecoin after Musk advocated for them via Twitter. But, what about government pronouncements, new laws, and corporate policies to accept or not accept certain alt-coins? It’s a mixed bag at best. For example, whenever the IRS issues a statement, you need to determine whether the new regulation is good or bad for holders of crypto. Another, longer-term determinant of alternative coin prices is retail acceptance. When stores like Starbucks and Home Depot announced that they are joining the bitcoin sensation, it’s positive news for BTC holders and prices typically rise shortly after such news releases.
Hacks and Security Perception
News reports about data hacks lost coins in online wallets, and problems with transaction security can all have a negative effect on prices and lead directly to a decline in popularity of whatever coins are involved in the fiascos. Situations like these are further examples of how the Musk effect is not limited to a single person but instead can emanate from a news story on any given day. Among the leading 30 cryptos out there, the top 10 account for the vast majority of capitalization. That’s why it’s wise to follow the daily financial news if you include alt-coins in your holdings.
What’s the Long-Term View for Crypto?
Regardless of one person’s, or one entity’s power to move cryptocurrency prices, the economy as a whole is the final determinant of the alternative currency sector as a whole. While people who lead companies or have celebrity status can and do directly impact alt-coin prices by their actions and public statements, there’s more to the equation than that. Perhaps the single most relevant factor for cryptos is a consumer and retail acceptance. Because no matter how much a social/financial guru touts a particular opportunity, no form of money can succeed unless millions of people can spend it to purchase goods and services. For investors in the alternative coin marketplace, it can be helpful to look at the long view by watching how many stores, banks, and government entities accept a specific form of payment.