He is known to have the “Musk effect” on the market and even with crypto in freefall he’s backing it. But this time, Elon Musk is failing to get the currency to fire up.
With the cryptocurrency bloodbath leaving panicked investors scrambling as bitcoin and other cryptos plunged and almost $US1 trillion ($A1.4 trillion) worth of value was wiped off the market in a month, it seems even billionaire Elon Muck can’t save the embattled sector.
In January, the cryptocurrency dogecoin soared in value by 15 per cent after the world’s richest man said it could be used to buy Tesla merchandise in a tweet.
The digital coin, which started as a joke complete with a shiba inu dog meme, rose to $US0.20 with its overall value skyrocketing 5859 per cent over the past 12 months, according to the Coinbase website.
Dogecoin also spiked dramatically after the world’s richest man struck a deal to buy Twitter for $US44 billion ($A61.4 billion) in April.
Dogecoin traders are fully expecting Musk to allow it to be traded on Twitter and the price spiked accordingly, trading for $US0.160040, up by an eye-watering 21.8 per cent.
But on Friday, the SpaceX founder’s tweet declaring dogecoin has “potential as a currency” failed to excite the market, unlike previous times.
Dogecoin increased by around 7 per cent after Musk’s tweet, going from $US0.1172 to a mere $US0.1270.
The phenomenon of the tech tycoon’s tweets buoying the market has been called the “Musk effect” by some.
In May 2021, a tweet by Musk was credited for a rise of more than 29 per cent in one particular cryptocurrency.
Yet cryptocurrency is taking a battering with fears it will ripple out into the broader financial market.
Bitcoin was trading around $US28,300 ($A41,200) on Thursday afternoon, down 20 per cent over the past week and nearly 60 per cent lower than its all-time high of $US69,000 ($A100,000) in November 2021.
Other major cryptocurrencies including ethereum and solana are now worth fractions of their all-time highs.
Google Trends data revealed that worldwide searches for ‘buy crypto’ exploded by 102 per cent on Thursday, after the cryptocurrency market crashed to its lowest point since 2020.
Australian crypto trading platform YourPortfolio managing director Daniel Sekers said the increased selling pressure shows that crypto markets are similar to investment markets, which are subject to pressures based on macroeconomic and geopolitical conditions.
“It’s worth remembering that this is the first real time crypto markets are being put to the test in a “market correction” driven by economic and geopolitical forces. The last time was driven by the pandemic where people were searching for an alternative and it kickstarted mainstream adoption,” he said.
“Many say that crypto is not influenced by economic forces. Frankly I disagree. It’s an investment asset like any other that will have forces drive its liquidity just like any other, especially as mainstream investors start to adopt it.”
But chief economist at trading firm ACY Securities Clifford Bennett said while the crypto market presents better odds than a casino, it was still risky business.
“To trade crypto in modest amounts is extremely entertaining while being fraught with danger from the huge volatility,” he said.
“Many people have become rich in the crypto mania and far more have lost their shirts. This is the very nature of any tulip bulb type market boom and bust.
“In such markets, there are the added dangers of initial success leading to ever heavier betting by participants, I mean investing, until the inevitable turnaround catches them at their most heavily leveraged point. It doesn’t take long for them to lose everything.”
There is a very real and distinct probability that the collapse of crypto markets is only the first link to shatter in financial markets, he said.
“That the repercussions with a market so widely participated in and of such significant size, are unavoidable in both sentiment and very real bottom line losses across the next and the next and the next asset class,” he said.
“Think just the start of the GFC, but a much bigger event, and you will begin to grasp how great the risk truly is at the moment.”