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07 June 2021

Bitcoin Has Key Person Risk

In the eyes of modern investors, Bitcoin operates as an alternative safe haven to gold with potential inflation hedging benefits. However, it turns out that despite increasing levels of institutional interest, the crypto asset is beholden to the ‘Elon Musketeers’, and the effects which the Tesla CEO’s tweets can cause to price volatility.

At Bitcoin’s peak in April 2021, the price rose as high as US$64,000 but its value is already 40% lower than that today. The asset has been hit with a barrage of negative news, which has repeatedly damaged market sentiment. Firstly, the momentum was building with Tesla announcing its acceptance of bitcoin as a way of purchasing its vehicles, which in turn offered hope of a wider credibility for the digital currency. Just weeks later, Mr Musk announced that the company had sold a considerable portion of its Bitcoin holdings for a tidy profit, exceeding the company’s profits from car sales in that quarter. This was a blow to the asset as investor panic set in, yet weeks after this, Musk tweeted that Tesla would no longer accept Bitcoin as a means of payment, further plunging the price making it untenable to some.

The announcement stemmed from the immense energy usage in mining the asset, placing it at odds with Tesla’s clean energy ideology; that it aims to improve the environment by reducing the polluting effects of the automobile industry. This led to a sell off, with investors switching their money into more energy efficient crypto currencies, such as Mr Musk’s favoured Dogecoin.

Even with all this negative press on Bitcoin, Musk is reluctant to condemn the asset entirely… until now. Overnight investors were hit with a tweet from the CEO with the words #Bitcoin, followed by a broken heart emoji. In true Elon style, the tweet displayed the kind of ambiguity his followers have become immune to, yet the inference was clear; he has now broken up with Bitcoin. Even if this does not mean he has fallen out of love with the asset, the Twitter Musketeers and the wider market understood it as such, causing Bitcoin to sell off by more than 4%.

Elon Musk has been in trouble in the past with regards to his tweeting antics, at one point stating that he would take Tesla private at $420, causing a spike in the company’s share price which is obvious market manipulation and resulted in a fine for Musk alongside other punishments. But some now feel Musk has found a new unregulated arena whereby he can manipulate the price of an asset and cause volatility in a market which cannot result in regulatory punishment, even with the financial effects he is having on some retail investors.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
Bitcoin Has Key Person Risk
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