11/9/2022

The Elon Musk Effect: How One Man Influenced a Market

By: Changhee Han, Rahul Patel

Dogecoin originated as a ‘joke’ currency that used a meme of the Japanese dog, Shiba as a coin image. The satirical cybermoney was first introduced in 2013, grew instantly with its online community, and surpassed the trade volume of Bitcoin in the following year. Doge was used for retail transactions, exchange resources in coin trading, and an online tipping system. In 2017, Doge reached a $2 billion USD market cap because of an ongoing bubble or period of substantial price increase . However, after the bubble was over, its price plummeted. Nevertheless, this coin was revived by the community’s reaction thanks to a tweet from Elon Musk, the richest man in the world.  In 2020, Musk began to publish Twitter posts regarding DogeCoin. They circulated around the platform and ended up having a tremendous impact on the coin’s price. Although his first post was a simple word, ‘Doge’, the coin’s transaction traffic skyrocketed in the coin market. The price surge attracted investors' interest towards Elon’s tweets. DogeCoin was fast becoming a trend. In 2021, other celebrities like Gene Simmon, Mark Cuban and Snoop Dogg joined Elon in encouraging the coin’s trend. Moreover, SpaceX, Elon’s space manufacturing company, announced Dogecoin as its official funding coin. Tesla also accepted Dogecoin in their payment system. This good news about the coin resulted in a price increase greater than 20,000% for one year. Eventually, it became the tenth-largest cryptocurrency in 2022.  Criticism of Musk’s behavior was also quick to arise. Some investors argued that Elon’s actions are market manipulation activities and sued him with a statement that he artificially inflated coin’s price. Also, the founder of the coin condemned Elon’s attitude. However, unlike stocks, cryptocurrencies are not regulated by the US government, meaning that there were no lawful reasons to arrest Elon. Musk never addressed the lawsuit but uploaded another post on Twitter, showing the intention to keep his attitude for the currency.  In general, Musk has continued to create economic ripple effects and attracted audience’s attention. As a result, the trend for Dogecoin has been rather unpredictable. Even Elon doing things unrelated to the coin like participating in a TV show, showing a business plan for Tesla or SpaceX, and generally posting on Twitter saw large fluctuations of Dogecoin’s price. The public are well aware of this trend and keep their eyes on Elon’s action in hopes of predicting the coin’s future.  Even now, two years later, Elon’s influence on the coin’s price still lingers. Recently the billionaire’s purchase of the social media platform Twitter has seen the coin surge 35% alongside promises of new developments like a digital wallet and an incorporation of dogecoin as a payment system. Ultimately, this rather unusual correlation has been dubbed the “Elon Musk effect” by the financial world. However, there have been numerous indicators suggesting this effect is coming to an end. Distrust in Musk soared after he called Dogecoin a “hustle” during an Saturday Night Live show in which he was guest starring. A few months later, investors did not react as dramatically when Musk announced his infrastructure company the Boring Company would be accepting Doge as payment. Though many other explanations such as the bear market have been tossed around, the future of the Elon Musk effect remains in question.