The Musk Effect: Is Elon's Interest in Crypto Having a Negative Effect On The Industry?

For years, Tesla CEO, Elon Musk, has been vocal about cryptocurrencies. Musk's influence cannot be underestimated. There is a strong correlation between his actions and the cryptocurrency market charts. Somehow the man who never was a cryptocurrency industry professional became a principle influencer and newsmaker in the sphere. Is he really doing a favor to the world of cryptocurrencies?

Without a doubt, these days, Musk is the most famous cryptocurrency proponent. He occasionally takes Twitter to boost the prices of Bitcoin and Dogecoin. The latter is a cryptocurrency that was created as a joke in 2013 but became very popular. It uses the Shiba Inu dog meme as a mascot. The strongest signal confirming that Musk trusts cryptocurrencies was Tesla buying $1.5 billion worth of Bitcoin.

However, Musk hasn't been an explicit Bitcoin advocate from the start. Not long ago, he even called Bitcoin "as useless as fiat money". If we look closely at Musk's actions on Twitter we will notice that mostly he uses it to promote Dogecoin, a coin that is loved for its fun image rather than good tech features.

Although Dogecoin transactions are quicker than the Bitcoin ones, this inflationary currency lacks a strong tech team and leadership. So, Elon is good at entertaining people with Doge tweets however, it doesn't seem that he feels like promoting cryptocurrencies that have strong features. Ethereum, Chainlink, Monero go unmentioned by Tesla CEO and one of the probable reasons is that he's not qualified well to speak on such topics as for decades he was busy and successful in other spheres.

Tesla's Bitcoin move can be explained by reasons different from enthusiasm about cryptocurrencies. Economist Nouriel Roubini sees the Bitcoin purchase made by Tesla as a market manipulation attempt. According to Roubini, Musk is using his Twitter to boost prices. The economist says that as Tesla isn't making money as much money as desired, the Bitcoin buy-in is nothing but irresponsible market abuse.

Looking at the situation from Roubini's perspective, Bitcoin was bought only to gain some money as a result of market manipulation as the very fact of Tesla buying bitcoins predictably drives the crypto market. So the company gets quick returns doing nothing. There are speculations that Tesla is already selling its coins after the Bitcoin price has reached new all-time-high levels. There is no evidence though.

Roubini doesn't stop at accusations. He notes that the SEC (U.S. Securities and Exchange Commission) should step in and investigate the case, as he believes that Elon Musk's behavior is criminal. The SEC has already investigated Musk's activity in 2018. The latter was accused of fraud and was required to step down as Tesla chairman. Also, the businessman had to pay $40 million in penalties. If the investigation takes place this time, it can have a negative impact on the cryptocurrency industry.

Another example of Elon's irresponsible behavior in the cryptocurrency sphere is the Twitter conversation he had with a representative of Freewallet, a company behind the multi-cryptocurrency wallet app. Amidst yet another Dogecoin rally that was partly driven by Elon Musk many crypto professionals, both companies and individuals, were referencing Musk's tweets in order to make social media content and join the cheerful hype over Dogecoin as the price was skyrocketing. One of these companies was Freewallet. On Twitter, it summoned people to buy Doge using a Freewallet feature allowing them to buy Dogecoin for fiat money right in the wallet app. The post was accompanied by a retweet of Elon's recent tweet and read "DOGE doesn't stop. We agree 100% with #ElonMusk and his #ElonDOGE."

The response from Musk himself followed shortly after. The SpaceX CEO hit the reply section with a "Your app sucks''. A bit later he added that people should, by all means, avoid using wallets that don't allow users to hold their private keys. This negativity towards custodial wallets echoes what many crypto enthusiasts say however it doesn't mean that this attitude is mainstream nor it's self-obvious.

Many popular cryptocurrency wallets are custodial, meaning that their users don't make operations with the wallets using their private keys, rather they order some actions to be performed and the private keys get involved without straightforward participation from users. The custodial wallets' users don't have access to their private keys. They access their wallets via passwords, authenticators, and other ways, similar to banks. There are such established names as Coinbase and Binance among the brands providing custodial wallets.

It is hard to say if there was any use in notifying over 45 million people that some cryptocurrency wallet "sucks'' based on the fact that it doesn't allow users to control their private keys. However, that's not where the story has finished. Freewallet representatives have replied that Musk's Freewallet account is online and thanked him for choosing their wallet revealing that despite criticism aimed at custodial wallets, Musk is among the customers of this platform, too. In further conversation, he asked to unblock his account and thanked the Freewallet team when his query was satisfied. Later, on Twitter, Freewallet explained that the account of Elon Musk was blocked automatically in order to pursue the safety of funds. "We have to be vigilant," the tweet reads.

In this case, Musk voiced a popular stance usually represented by the phrase "not your keys, not your money" and turned out to be using the wallet that he just publicly criticized. Judging by numerous replies to Musk's "sucks" tweet, many of his fans thought that it will destroy the reputation of Freewallet, a company that presents on the market since 2016 and have millions of users, nevertheless, there are publications stating that the conversation with Musk had the opposite effect.

It's a good thing that cryptocurrencies have matured enough to get such powerful allies as Musk and other big figures from financial, tech, entertainment, and other sectors. These people get their wide audiences familiar with cryptocurrency and bring the world a message that this blockchain thing isn't a fraud, isn't an empty space.

What we see here is that the industry is already standing on its entire feet and has a much better balance than before. It takes Elon Musk — one of the richest and most popular men in the world — to make this industry shake a bit. He is considered to be an ally but probably his easy-go demeanor is not something necessary for the following smooth development of the cryptocurrency industry. It has its own inner drivers and humble help from outside will probably play out better than hype bombs.