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Elon Musk is Now Blowing Up Bitcoin’s Case on Wall Street

Tesla Chief Executive Officer Elon Musk helped legitimize cryptocurrencies in the eyes of Wall Street investors but now, his tweets are scaring those same investors off.

In the span of a week, about a quarter of Bitcoin’s value has been wiped away, in part thanks to the head-spinning tweets from Musk on everything from whether Dogecoin is the better digital currency to Bitcoin’s toll on the environment. The token is now worth about as much as it was when Musk’s company first disclosed in February its intention to buy some.

Musk’s tweets are continuously having an impact on the cryptocurrency market and his latest posts have sown confusion across the industry and revived the debate over whether the nascent asset class is a serious investment.

Can Bitcoin, the world’s largest cryptocurrency, ever be a hedge against inflation and gold alternative with volatility like this? And is it simply a running joke on Twitter for the world’s second-richest man?

These questions are resonating with GAM Holding AG, which oversees 124.5 billion Swiss francs ($138 billion), as crypto’s unpredictable swings are proving a major drawback.

“Its volatility is so huge that it can actually distract clients from their investment goals,” said Julian Howard, head of multi-asset solutions at the firm, according to Bloomberg. “It’s often driven by tweets rather than fundamentals.”

Bitcoin has tumbled as Musk continues to tweet about it
Bitcoin has tumbled as Musk continues to tweet about it.
Source: Bloomberg

The widespread adoption of crypto had been on an upswing before this month’s roller-coaster. Tesla’s $1.5 billion purchase of Bitcoin in February was a watershed moment. At the time, Musk made investors put faith in Bitcoin by announcing that he would allow customers to buy cars with it and would keep a portion of Tesla’s balance sheet in the token. Goldman Sachs Group Inc. and Morgan Stanley also announced plans to offer their clients exposure to crypto.

With hordes of new retail and institutional investors piling in, prices shot up to $60,000 last month from $29,000 in January. After Musk’s latest announcement about Bitcoin’s environmental toll, the token now trades around $43,000 and some analysts say the market still looks precarious, especially as the volatility relies on Musk’s Twitter outbursts.

“I would definitely expect reduced appetite going forward,” said Felix Dian, founder of crypto-focused MVPQ Capital in London, which counts 70% of its investors as institutions. “First, because of the loss of momentum from a technical perspective, but also because of the extreme sensitivity on environmental issues.”

Bitcoin is inherently a speculative bet on market trends in the years ahead as it has no underlying fundamentals, such as profit streams or interest payments that help anchor the value of stocks and bonds.

“It’s the ultimate momentum trade,” said Wayne Wicker, chief investment officer at Vantagepoint Investment Advisers. “The mainstream adoption will come from institutional investors over time and regardless of Elon Musk.”

relates to Elon Musk Is Now Blowing Up the Wall Street Case for Bitcoin
Bitcoin’s “beta,” or its volatility in relation to the S&P 500, has been stable, according to Cornerstone Macro.
Source: Bloomberg

Still, Bitcoin is far less volatile than it used to be. Cornerstone Macro’s Benson Durham says Bitcoin’s correlation to other assets, therefore its impact on overall portfolio swings is a more relevant metric for investors.

By that measure, there’s “not much change to write home about during the recent pullback,“ he wrote.

Meanwhile, crypto insiders say the Musk-driven volatility is just a temporary blip and will soon blow over.

“We take a longer view, and investors would be right to do the same,“ said Greg King, chief executive officer of Osprey Funds, which offers crypto trust funds. “The key question is whether we think this asset is going to last? The answer is yes.”

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