Angered by heavy losses, virtual currency investors ask Elon Musk to stop posting on Twitter.
In recent weeks, a range of virtual currencies from Bitcoin, Dogecoin to smaller coins have fluctuated wildly. At one point, Bitcoin dropped nearly 40%. And Elon Musk, CEO of electric car company Tesla, is said to be one of the reasons behind the recent “tsunami” of virtual currency.
Whether it’s taking on a TV show and joking about Dogecoin or saying that Bitcoin mining is bad for the environment, his activities in the virtual currency world make many investors expect him to stop using Twitter and focus on developing electric vehicles.
Investors “frustrated” with the Influence of Elon Musk
According to CNN, many Bitcoin supporters are tired of Musk influencing the short-term price movements of nearly all cryptocurrencies.
Musk followers blindly have lost a lot of money. They may have run out of pocket and never come back, said Alex Mashinsky – CEO, founder of virtual currency lending platform Celsius – said.
Investors and analysts are annoyed that nearly all cryptocurrencies rise and fall in tandem with Bitcoin and Dogecoin — in part because Musk makes cryptic comments about them. Many virtual currency investors are also annoyed that just one comment from this billionaire can cause prices to fluctuate wildly.
Musk is a calculation man. And people are angry, said Eloisa Marchesoni, an investor and cryptocurrency consultant.
The main tool for Elon Musk to “drive” the virtual currency market is the social network Twitter. After a series of Tweets caused the price of Dogecoin to fluctuate wildly, in a Twitter post this Monday morning (May 24), Musk continued to talk about this virtual currency. In the post, Musk shared a mock-up of the famous movie “Jaws”.
In the photo, a crumpled dollar replaces the unfortunate swimmer who was attacked in Jaws, while the infamous shark in the film is replaced by a giant dog (the Shiba is the symbol of the shark). statue of Dogecoin). The word DOGE appears at the top in prominent red size and color, with the caption “You’ll never use the dollar again.”
Last weekend, Musk also responded to a netizen who asked what he thought about people “who are angry at you because of crypto.” The Tesla Inc. CEO tweeted that the “true battle is between fiat & crypto. On balance, I support the latter.”
Musk is certainly not the only reason for the recent crypto sell-off. Contributing to the fear of virtual currency investors is China’s tightening control of the virtual currency market as well as the possibility that the US will impose more taxes on virtual currencies.
However, the fact that Musk constantly spoke about virtual currencies on social networks confused investors.
I still don’t understand what Musk’s view on Dogecoin is and I believe the world does. Why does he think it has value?, Megan Kaspar, CEO of virtual currency investment company Magnetic, said. Institutional investors are very cautious and they don’t buy Dogecoin just because Musk pumped it up. However, individual investors may not be.
Calling to stop interesting in Elon Musk
Investor Eloisa Marchesoni urges long-term investors to stop paying attention to Elon Musk and focus only on Bitcoin, Ether, or other prominent virtual currencies like Cardano or XRP.
There’s nothing to worry about if you’re a long-term investor, Marchesoni said. But if you are a small investor, you will be crushed unless you stay away from coins like Dogecoin.
Meanwhile, Mashinsky, the founder of virtual currency lending platform Celsius, agrees that investors who surf will soon tire of the volatility of cryptocurrencies and leave the “playing field” to the investors. long-term investors – people who like cryptocurrencies because it’s not controlled by central banks.
We are seeing a wave of investors surfing cryptocurrencies. Many people don’t buy cryptocurrencies because they believe in financial freedom or long-term portfolio diversification. They’re just trying to make a quick buck, Mashinsky said.
That is why many analysts are also urging investors to consider fiat-to-crypto coins like Tether, USD Coin, and Binance USD. These are virtual currencies tied to the value of USD, Euro, or other currencies.
However, it is undeniable that Bitcoin and other virtual currencies are relatively new assets compared to stocks, bonds, or commodities and currencies. Most cryptocurrencies are volatile, especially when Musk refuses to stop tweeting.
Cryptocurrencies have a lot of risks and Musk is a prime example of those risks. What he says has an impact… at least for now, Ed Egilinsky, CEO of Direxion, comment.
Not Elon Musk, 100x leverage is what makes virtual currency fluctuate like a roller coaster
However, the violent volatility in the virtual currency market in recent days is mainly caused by something else, not the tightening of Chinese controls or the tweets of billionaire Elon Musk.
Investors who risked taking big risks in the cryptocurrency market – an unregulated market – were forced to sell off as prices fell. That is the main reason for the 30% drop in Bitcoin price and the paralysis of major virtual currency exchanges last week, according to CNBC news agency, citing analysts.
Last week, there was a time when Bitcoin – the world’s largest virtual currency – sometimes “evaporated” a third of its value within just a few hours.
On May 26, the price of Bitcoin according to data on Coinmarketcap.com site was more than 38,000 USD, down about 4% compared to 24 hours ago. Since yesterday, the market has been more stable, with the increase-decrease of major cryptocurrencies in single digits.
Even so, compared to the all-time high set in April, the Bitcoin price is now down about 33%.
The risk that experts mention here is that virtual currency investors use financial leverage – borrow margin from a brokerage company to place a larger bet on virtual currency. In regulated markets like stocks, leverage is inherently risky. In an unregulated market like cryptocurrencies, the risk posed by leverage is much greater.
When the price of a virtual currency drops to a certain level, such as due to a tweet by Musk or a statement of tightening control from China, investors who borrow on margin will have to sell virtual currency to pay back the borrowed money. of the brokerage company – according to the margin call regulations. There is always a fixed price at which a margin call is initiated, to ensure that the investor has to repay the loan in full to the brokerage firm. Therefore, when the price of a virtual currency drops to that level, a massive sell-off will take place, pushing the price down at an even more dizzying rate.
Brian Kelly, CEO of BKCM, said that some brokers in Asia like BitMEX allow 100-1 leverage for crypto investors. American online trading app Robinhood does not allow investors to leverage cryptocurrencies, while Coinbase only allows professional traders to use the tool.
There is a crowd factor here. The threshold for selling mortgages of investors is often similar. So when one person has to sell, it’s time for everyone else to sell. The sell order automatically appeared massively, the price of virtual currency only had a head start, Kelly told CNBC.
According to data from bybt.com, Bitcoin investors sold about $12 billion in leveraged positions in the last week. The runaway wiped out money from about 800,000 crypto investment accounts.
“The sell-off leads to a stronger sell-off until the market reaches leverage equilibrium,” said JMP analyst Devin Ryan. Liquidation of leveraged positions causes sell orders to increase exponentially.
“Leverage in the virtual currency market, especially on the part of retail investors, is a big factor causing volatility,” Ryan emphasized. The analyst added that leverage will have less of an impact as the cryptocurrency market matures, especially as more institutional investors enter the market.
Bitcoin living growth
This year, Bitcoin and other cryptocurrencies have drawn strong capital from both individual and institutional investors. The world’s largest virtual currency exchange Coinbase said that the trading volume in the first quarter reached 335 billion USD, of which about 120 billion USD came from individual investors and 215 billion USD came from institutional investors. In the first quarter of 2020, the trading volume of this exchange only reached 30 billion USD.
In addition, the booming Bitcoin lending market is also a cause of volatility.
Cryptocurrency companies like BlockFi and Celsius allow Bitcoin custodians to hold Bitcoins for owners and pay them interest rates of 6-8% per year. These companies then use their Bitcoin holdings to lend to hedge funds and other professional investors.
These companies also provide loans to customers who use Bitcoin as collateral.
For example, if a person takes a $1 million loan as collateral in Bitcoin when the price of Bitcoin drops 30%, the borrower will owe the lender that 30% value. “When the debt level increases to a certain number, the lending company will automatically sell your Bitcoins to recover the debt. This increases the sell-off effect, causing many exchanges to become congested,” Kelly explained.
The fact that Bitcoin in particular and virtual currencies, in general, is outside the control of the central bank is a factor that makes this asset class valuable to investors. But it is the decentralization and the growing popularity of virtual currencies that make the authorities unable to stay out.
The US Treasury Department recently announced that it will require all virtual money transfers worth more than $10,000 to be reported to the US Internal Revenue Service (IRS).
The virtual currency market does not have the same support as other traditional markets. But thanks to that, the virtual currency is not affected by a single ‘buyer of last resort, Ryan said.
Still, Mr. Ryan said that regulation can be seen as ratification for the cryptocurrency market, and could be a positive for digital assets. The virtual currency market is still new compared to other investment channels, so it needs to go through a maturation phase. Volatility is a feature in the evolution of the market, he said.