El-Erian on why Elon Musk tweets have ‘shaken’ the bitcoin dynamic


Mohamed El-Erian, Allianz’s chief economic advisor, says the recent drop in Bitcoin prices is a sign that the cryptocurrency has become “more volatile and sensitive” to tweets from Elon Musk, the Tesla boss whose company has a large stake be the cryptocurrency.

El-Erian said three main groups of holders have pushed the price of Bitcoin up over the past five months: those who believe it will become a global currency; those who accept it as a means of payment in the private sector; and short term speculators.

He added that Musk’s February tweet that Tesla would accept bitcoin as payment for its electric vehicles “loudly supports bitcoin as both a potential currency, including a store of value, and a form of payment.”

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“As a sign of greater acceptance by the private sector, more owners pushed their way into the three groups,” El-Erian told Financial News.

However, Musk’s recent tweets turned that idea on its head.

“The ambiguous news from Elon Musk / Tesla in the past few days has shaken that dynamic and made the movements in Bitcoin prices more volatile and sensitive to the tweets,” said El-Erian, who said earlier this year he had Bitcoin for $ 5,000 bought and later sold at $ 19,000.

Bitcoin fell to a three-month low below $ 43,000 in the early hours of May 17 after an earlier exchange between Musk and another Twitter user named @CryptoWhale implied that Tesla had sold or might reduce its stake.

Musk later took to Twitter to “clear speculation” and stated that Tesla had not sold its stake in Bitcoin, which stood at $ 1.5 billion earlier this year. Bitcoin’s price rebounded to around $ 45,000 due to Musk’s tweet.

Bitcoin’s price had already declined steadily after Musk sent out another tweet on May 12 announcing that Tesla would no longer accept the cryptocurrency as payment for its cars – just three months after announcing it. The U-turn, triggered by environmental concerns related to Bitcoin mining, caused the price of the digital currency to fall more than 10%.

READ Fund managers accuse the Bitcoin rally of a delusional story: “It’s an interesting asset class, but that’s about it.”

Retail investors were instrumental in driving the Bitcoin price boom, with institutional investors wary of venturing into the cryptocurrency citing large price swings as one of the main reasons for portfolio exclusion.

“Lower volatility, including greater resilience in the face of such tweets, would be part of the process where cryptos accelerate their maturation and become a widespread asset in institutional investor asset allocation,” El-Erian said.

“This also requires signals from governments and central banks that they are more comfortable with a wider institutional rollout of Bitcoin and other cryptos.”

Last week, fintech firm Square Financial News announced that it had “no plans” to make additional Bitcoin purchases at this point.

Amrita Ahuja, the payments company’s chief financial officer, said in an interview on May 14 that Square “had no plans to make any further purchases” for its corporate coffers at the time.

After criticizing the move on social media, Square CEO Jack Dorsey, who also runs Twitter, later said, “Bitcoin is changing * everything * … for the better. And we will work forever to make Bitcoin better. “

To contact the author of this story with feedback or news, email David Ricketts