The power of Trading Trendsetters: Bitcoin crashes to $38,000 as Elon Musk-fueled rally collapses
Tesla CEO Elon Musk attempts to rally the price of Bitcoin failed as the cryptocurrency price plunges. Today, we look at the power of online trading influencers.
Telsa CEO, Elon Musk, has been a champion of Bitcoin, pushing the price of the Cryptocurrency to record new highs. It then came as a huge deflating surprise when the Tesla chief sent the crypto king plunging with his tweets.
The world’s largest cryptocurrency crashed from a record high of $65,000 to a low of $38,000 on May 19. That’s an incredible 40% drop. Rival cryptocurrencies also saw a drop including Ether (Ethereum), which declined by more than 20%. The reason? In part, Musk’s contradictory statements on Twitter.
Bitcoin performance: May 14 – 19
Earlier in February, Musk added legitimacy to Bitcoin as he announced clients could use the crypto as a form of payment for their brand-new Teslas. In May, however, he retracted that announcement, causing a slew of panic selloffs. Even though Musk tried to assuage crypto-enthusiasts’ concerns, the damage had been done.
Adding fuel to the crypto fire is a statement from the People’s Bank of China, stating that crypto can’t be used as a form of payment, adding to the mass selloff.
CMTrading specialist, Fred Razak, sheds some light on the Bitcoin crash and the impact that key individuals can have on the financial markets.
Elon Musk/Bitcoin debacle
Razak notes: “Looking at the debacle between Elon Musk and Bitcoin, it was kind of a retracement on his part. Initially, he said Tesla was going to accept Bitcoin as a valid form of currency for payment for Teslas and subsequently retracted that statement. In between that, there were other firms, namely one of his former companies PayPal, as well as Mastercard and Visa, saying that they would accept Bitcoin as a form of payment.
“People asked ‘should we buy bitcoins?’, ‘Should I invest in Bitcoin?’ and this is the element of the lack of regulation in Bitcoin and the lack of Central government controlling it. It gives a very volatile character to the actual cryptocurrency. As a major currency, you can’t have volatility like that; imagine if the price of your house was to fluctuate $20,000 – $30,0000 on any given day. I don’t think you’d be able to sleep well at night.
“That is the problem with using Bitcoin, because ultimately you want a currency that’s actually very stable. You don’t want a deflation or inflation that’s more than 2% per year because rapid fluctuations increase the exchange rate risk.”
Who are some major market influencers today?
“Warren Buffett and Charlie Munger, who is his partner, are probably the biggest influence on the markets today – hands down. George Soros is another superinvestor and then you have the heads of central banks as well as private financial institutions such as the CEO of JP Morgan, Jamie Dimon. Others that are detached for the most part from the financial sphere are Jeff Bezos and Bill Gates, who’s been very vocal about the pandemic and has set the timeline for the pandemic for us. I would say any of these major CEOs that are really in the backdrop and not involved in the day-to-day of their corporations but are famous for seeing the bigger picture markets have the biggest influence on the markets today.”
“Market reactions go way back”
“Market reactions by individuals go way back. We can look at JP Morgan himself making some statements in the 1920s that lead to the 1929 crash of the Dow Jones, which led into the Great Depression in the United States and ultimately the beginning of World War 2 and Germany’s hyperinflation. These are some of the things that historically major trendsetters have made about the markets either because they were trading on intervals larger than where they were, or at least, where they were supposed to be trading.
“Speaking about the markets right now, there have been a lot of individuals who have said that the markets are trading on intervals that are unsustainable. They are just being supported by central governments or central banks, artificially sustaining the markets where they are right now in terms of understanding where the real value of the market is – the real value of the particular stocks today. Individuals do weigh in on markets, they do give us clues, not always are those relevant to who we are. Something Ray Dalio says is ‘cash is king’ – while, cash may be of such import if you’re a billion-dollar investor, but for someone who’s middle-income, living from paycheck-to-paycheck there are other priorities. It has to be realised and appropriated for each level, so it’s something that is relative to how you’re looking at the particular influence of some of these market leaders.”
How do these individuals affect the markets?
“It’s key individuals or trendsetters that affect the markets. Some of these trendsetters have a lead in terms of understanding where the markets are going just because they see the numbers. You can take any industry; companies already know how they’re doing for any particular quarter. Before their corporate earnings are published to the public every quarter, they really know and have a finger on the pulse of what is going on in the markets in real-time, because they see the sales coming in, or not coming in at any given time. So, these individuals who head these major corporations actually have a little bit of a lead over the rest of the market. This also affects how they’re able to sell stock as well. There is a rule in the SEC that doesn’t allow individual with insider knowledge to sell stock ‘today’. If I am Jeff Bezos and I want to sell Amazon stock, it could only be 90 days or even longer than that before they’re able to sell that stock. Individuals who know what is going on in the markets really can have a lead.”
What is the trendsetters’ responsibility to the markets?
“These people who are trendsetters or leaders of particular markets, definitely have their role to play as well as the responsibility to provide, and not falsify information for the public for their own good. Unfortunately, this doesn’t always seem to be the case. There have been cases where for example, supposedly the investing side of a particular security firm is not supposed to have anything to do with their trading site, that’s called a ‘Chinese Wall’. These investors who have a little bit of an edge, who are speaking to trendsetters and people on the ground, have more of an advantage over retail traders because the information they hold hasn’t really disseminated into the market yet. They are not supposed to be having any kind of discussions with each other. That’s called insider trading. These people should know where their responsibility lies, and it goes even further than that. The CEOs, head sales managers and head of departments have the responsibility to make sure that things are not swayed in such a way.
“Another example is the current statement of Elon Musk on Bitcoin. We saw the price of Bitcoin soar as MasterCard and PayPal started accepting it officially. That increased the price of the cryptocurrency to tens of thousands of dollars per bitcoin. And that’s currently the hesitancy of the market taking and adapting to cryptocurrencies because they’re so volatile.”
Advice for traders:
“Learn first the basic concepts of economics and try to get your head around market cycles. There are economic factors that lend themselves into those market cycles. These will paint a clearer picture for you as a trader of where the markets are heading. It’s not just looking at the graphs, understanding technical analysis and applying it correctly – more about understanding the why behind every movement at any point in time. Ongoing education is of course a trader’s best chance at success.
“We’re all in an interrelated market today. Ultimately, that is the benefactor for traders because the information is so transparent across the board. Whether you’re living in South Africa, China or Canada it doesn’t make a difference – the information is so freely available everywhere and a solid education is the best place to start.”
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