Will Musk's conspiracy with Dogecoin and Bitcoin involve market manipulation?

Following Musk's sudden announcement last week that Tesla would stop accepting Bitcoin as a payment method for purchasing cars due to the high pollution level of Bitcoin from mining to trading, last Sunday, a netizen predicted that "Bitcoin investors will be extremely regretful when they realize that Tesla is selling its Bitcoin holdings in the next quarter", and Musk gave a positive response.

This response immediately ignited the fragile nerves of cryptocurrencies. Bitcoin, which was already on a downward trend, accelerated its sharp decline, with the price of each coin falling below $43,000, more than $6,000 from its intraday high, all the way to its lowest level since February this year. Although the price of Bitcoin rebounded after Musk's subsequent clarification, it has evaporated about $20,000 compared to the peak of $60,000 per coin in April.

As of 20:03 Beijing time on May 17, the price of Bitcoin was US$45,661.75, down 7.11% in 24 hours.

Musk is ambiguous about Dogecoin and Bitcoin

The changes in the cryptocurrency market, including Bitcoin, last week were extremely "eye-catching".

“Bitcoin investors will regret it when they find out that Tesla is selling its Bitcoin holdings in the next quarter.”

On May 16th local time, a netizen with the account name "cryptowhale" said this on social media.

This seemingly ordinary message would not have stood out among the many remarks made by Musk in response to Bitcoin supporters last week, but after Musk replied with the word "indeed", the market exploded.

Bitcoin, which has always been influenced by Musk, then further declined, falling below $45,000 for the first time in nearly three months, and continued to fall through $45,000 and $44,000, setting the lowest price record since February this year, a drop of about 8%.

As of May 17, Musk made another statement to clarify, "Tesla has not sold any Bitcoin, just to clarify."

As a result, Bitcoin temporarily stabilized its downward trend.

This fluctuation happened just after Tesla's attitude towards Bitcoin suddenly changed.

On May 12, local time, Musk said that Tesla would suspend the use of Bitcoin as a payment method for car purchases due to concerns about the large-scale use of fossil fuels, especially coal energy, in the process of Bitcoin mining and trading. His original words were, "We believe that cryptocurrencies have great potential in many aspects, but this cannot be at the cost of polluting the environment. Tesla will not sell any Bitcoin, and will only restart Bitcoin transactions after it switches to a more environmentally friendly method. At the same time, we are also looking for other cryptocurrencies that consume less than 1% of Bitcoin's energy."

As expected, the price of Bitcoin immediately plunged, with each coin falling to around $50,000, a drop of 11%. The decline has continued to this day, and at one point the price fell below $43,000 per coin.

Behind the above set of psychedelic operations, Musk's attitude towards Dogecoin has been wavering and he has changed his stance.

On May 8, local time, Musk launched a "popularization" of "Dogecoin" and the principles behind it in his debut show "Saturday Night Live". However, after the host asked him "Is this a scam?", Musk suddenly admitted, "Yes, I think it is a scam."

Dogecoin, which once surged to $0.7376 per coin, turned sharply downward, and the decline widened all the way, from the intraday high of $0.72 to $0.41, a drop of 24.85% in 24 hours. Dogecoin fans were simply panicked, and left messages under Musk's account, hoping to get Musk's blessing again. The expectation seemed to come true. Shortly after the late-night show ended, SpaceX took the lead in saying that it would accept Dogecoin as an exclusive payment method for launching the lunar satellite DOGE-1. Musk then took advantage of the heat and held an online public vote on "Do you want to buy Tesla with Dogecoin?" More than 2.5 million fans participated in it, and 77% expressed their willingness to pay for Tesla with Dogecoin. Two consecutive rounds of operations have raised the price of Dogecoin, and the price of Dogecoin is currently hovering in the range of 0.496-0.502.

What is even more exciting to Dogecoin fans is that just one day after Tesla announced the suspension of Bitcoin payment method, Musk claimed that he was working with Doge developers to improve transaction efficiency.

Cryptocurrency Trend Analysis

Tony Sycamore, a senior analyst at Forex Capital, explained to a reporter from 21st Century Business Herald that for novice investors, it is difficult for Bitcoin to surge by a thousand times again. Therefore, Dogecoin and other altcoins may become the next hope. Recently, many investors have sold Bitcoin and exchanged it for Ethereum, the second largest cryptocurrency in the cryptocurrency circle, and Dogecoin has also become a popular choice.

Tony Sycamore believes that "Bitcoin's dominance is difficult to shake. The current cryptocurrency market is in a bull market, so various altcoins have generally risen, which in turn has lowered Bitcoin's market share. In the future, when the market enters a bear market, Bitcoin's market share will increase again."

Yu Jianing, rotating chairman of the Blockchain Committee of the China Communications Industry Association and president of Huobi University, pointed out in an interview with a reporter from 21st Century Business Herald that given that the price of Bitcoin has risen sharply in the short term, and the craze for "Animal Coin" has brought about a certain degree of market bubble, Bitcoin has cooled down to a certain extent.

"The current market is in a stalemate stage with traditional institutions allocating crypto assets, Coinbase's listing benefits landing, and the Federal Reserve wavering on interest rate hikes. Apart from Musk's personal influence on Bitcoin and animal coins such as Dogecoin, market hot spots are gradually receding, and short-term upward momentum is weak, so there will inevitably be a temporary correction," said Yu Jianing. "But in the medium and long term, the current crypto asset market may be in the stage corresponding to July and August 2017, and outsiders have not yet entered the market on a large scale. It was not until May this year that it entered a real bull market, with off-site funds constantly entering the market and market sentiment extremely excited, but at the same time, the entire market has serious differences in its judgment and choice of assets. Therefore, the next few months may be the mid-term of the bull market, and Bitcoin and other mainstream assets still have room to continue to rise, but only a small number of emerging assets can experience bull and bear markets and become valuable assets in the future."

Is Musk suspected of market manipulation?

Obviously, behind Musk's repeated and seemingly "impulsive" remarks on the virtual currency market, is it really as he explained, "It's not surprising for someone like me who can send SpaceX to the moon to speak like this", or are there other human considerations? Has Tesla sold all its remaining bitcoins? And has Musk made any operations on the bitcoins he holds?

Back to April 26, local time, Tesla Inc. released its quarterly financial report showing that it purchased $1.2 billion worth of Bitcoin in the first quarter and earned $101 million from selling Bitcoin. In the earnings call, Tesla Chief Financial Officer Zachary Kirkhorn reiterated his belief in the long-term value of Bitcoin and his commitment to using it as a payment method.

In just over half a month, Musk has launched a bearish statement about the high pollution of Bitcoin. Musk, who is good at technology and has been active in the field of cryptocurrency for a long time, should have only recently realized the pollution caused by Bitcoin. Otherwise, why would he have been so confident in the beginning?

But so far, no news has been leaked about Musk's personal Bitcoin holdings.

Yu Jianing believes that the reason why Musk can have such a great impact on crypto assets such as Bitcoin and Dogecoin is that the crypto asset market has long been eager to integrate into mainstream finance. "Whether it is Musk, or representatives of traditional financial capital such as Buffett, Charlie Munger, and Bill Gates, their views on Bitcoin will have an impact on the overall market confidence. Compared with Buffett, Charlie Munger or Bill Gates, their attitudes towards Bitcoin have never changed much, and investors have psychological expectations. Only Musk has been promoting Bitcoin and Dogecoin on social media day after day since this year, using his social network celebrity status to assign values ​​to Bitcoin and Dogecoin, driving retail investors who follow him to invest and even chase the rise."

But a further question is, at a time when the U.S. Securities and Exchange Commission (SEC) is tightening cryptocurrency regulation, can its completely contradictory statements under the SEC's nose be classified as market manipulation?

The SEC defines market manipulation as an intentional deceptive act that deceives investors by controlling or artificially influencing prices; or intentionally interfering with the free supply and demand in the market to artificially guide stock price changes. Market manipulation usually takes the form of pump and dump and hype and dump.

A lawyer told the 21st Century Business Herald reporter that market manipulation is unique to the securities market, and Bitcoin is not a security token. Under existing regulations, Musk does not currently constitute market manipulation because the cryptocurrency field is not currently subject to SEC regulatory rules.

"I think there should be a professional organization to investigate whether he has the intention to manipulate the market and can actually make a profit in this way. If an organization finds evidence in the future that Musk deliberately manipulated the market and made a profit, Musk will most likely be punished by the US securities regulator. There have been precedents of American celebrities being punished for 'calling' for certain encrypted assets," said Yu Jianing.

Matt Weller, global research director of Gain Capital, told the 21st Century Business Herald that Musk's one-sided bullishness on cryptocurrencies may attract regulatory attention. "After Musk was bullish on Dogecoin, he was invited to a 'tea session' by regulators and even stopped using social media. Musk has since started to restrain himself. The most important thing is that at this stage, Musk needs to pay attention to the views of large institutional investors, as the hype of Bitcoin has disgusted many institutions."

Matt Weller also believes that "Tesla's high ESG rating is due to the help of 'clean technology opportunities'. Perhaps Musk does not want Bitcoin to hold him back now. From a technical perspective, Tesla's stock price is trading near the lower track of the six-month range, with potential support at the 200-day exponential moving average of 580, the previous support of 540, and the support converted from resistance at 500."