Musk Threatens Institutional Adoption of Cryptocurrency

  • Elon Musk reintroduces large volatility swings to cryptocurrencies through his relentless tweeting
  • Institutional investors who were preparing to invest into cryptocurrencies are now taking their time about it as volatility swings make them skittish 
It was all going so well for Bitcoin. 
Paul Tudor Jones was in. Stanley Druckenmiller was in. Fidelity Investments was in. BlackRock was in. Square (-2.37%) was in. MicroStrategy (-6.13%) was in. Then Tesla came in.
And then it was not going so well.
Despite the wave of institutional interest in cryptocurrencies, all it needed was one character to bring back the volatility that the sector had been notorious for and spook participants.
Whilst Elon Musk’s bet on Bitcoin helped to legitimize cryptocurrencies in the eyes of Wall Street investors, his tweets are turning them off and leaving a torrent of volatility in their wake.
In the span just one week, about a fifth of Bitcoin’s market cap has been wiped off, or roughly US$150 billion, in part thanks to the whiplash-inducing tweets from Musk on everything from Bitcoin’s toll on the environment (which threatens the endangered Shiba Inu) to whether Dogecoin can be a more “green” cryptocurrency.
Thanks to his tweeting, Musk has successfully brought Bitcoin back to where it was when Tesla first invested in the cryptocurrency.
And because Bitcoin has no underlying fundamentals, such as income streams or yields, that help at least to anchor a valuation matrix for stocks and bonds, it’s inherently a speculative bet, driven by narratives and of late, Musk’s narcissism.  
Yet for all the gut-wrenching moves Bitcoin has made of late, it is still far less volatile than it used to be, cold comfort for investors who bought the cryptocurrency at US$60,000.
And telling already somewhat skeptical institutional investors and family offices that Bitcoin and cryptocurrencies aren’t as volatile as they used to be is akin to telling someone stuck in the middle of a storm at sea that, “Hey, at least the ship isn’t rocking as much as when we were in that hurricane.”
An iron-clad stomach is necessary to navigate cryptocurrency waters, and while the volatility can be sickening at times, its lack of a correlation to other assets, and its impact on overall portfolio swings, is probably the more relevant metric for investors.
In which case, the most recent pullback should evoke nothing more than a yawn, wake me up when Musk has left the building.  

Novum Digital Asset Alpha is a digital asset quantitative trading firm.

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