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The “Musk” Effect

Other than being one of the world’s richest men and a tech genius, Elon musk is also proclaimed to be a ‘Twitter lord’ for many. He maintains his relevance by being an active meme contributor and a social commentator. He also shares major updates for Tesla and SpaceX with his 48 million followers on Twitter. A billionaire who connects with the masses and seems accessible, but what could possibly be harmful in this scenario?

His power to influence stock prices. The founder of Tesla has been the epicenter of several of these instances with an extreme influence on the trading and valuation of cryptocurrencies.

Musk has influenced the prices of firms in the recent past with just a single tweet whether it be in favor of signal, dogecoin, and bitcoin, etc which consequently led investors rushing to buy the units of the same. However, this blind following caused a small component of investors to accidentally buy shares in “Signal Advance”, a completely unrelated firm, sending its stock up 1000%. Due to another one of his tweets “I kinda love Etsy,” stock prices of the online craft marketplace subsequently soared by 9%. This is not all, he jumped on the GameStop bandwagon and his “GameStonk!” tweet led to a 50% rise in prices.

Beyond these instances is his impact on the volatility of short-term cryptocurrency returns and volume, specifically on Bitcoin and Dogecoin. The impact of Musk’s Tweets has led to a research paper analysing this correlation. Lennart Ante (2021) refers to this as the ‘Musk Effect’. The paper also reveals the role of social media, specifically Twitter, and its influence on sentiment and investor attention on cryptocurrency markets.

Bitcoin’s value jumped more than 20% after Elon Musk changed his personal Twitter bio to #bitcoin, fueling speculation among traders. It resulted in abnormal returns of 6.31% over 30 minutes and peaked at 18.99% over a period of 7 hours. The price of Bitcoin rose by approximately $6,000 in this span, increasing its market valuation by $111 billion.

Ante’s paper analyses the exact change in prices corresponding to the 0th minute i.e. the moment when Elon Musk changed his bio.

His tweets on Dogecoin have had a similar impact leading to considerable volatility in its valuation. Musk’s tweet “One word: Doge” resulted in significant cumulative abnormal returns of 8.17% over a window of five minutes, peaking at 17.31% over the period of one hour. He posted a picture of a fictional “Dogue” magazine — a play on the fashion title “Vogue” — leading to an 800% surge in dogecoin’s price. His most recent tweet just had the word “Literally” along with a meme picture of the dogecoin flag on the moon. Market analysts claim this tweet led to a further 25% soar in the valuation of the cryptocurrency.

Ante’s research illustrates a similar spike to the one witnessed with bitcoin.

While I agree that Elon Musk could be considered a technically sound source in terms of market trading suggestions, there are three inherent problems that are extremely concerning.

Firstly, the fact that Elon Musk later claimed his dogecoin-related tweets to be a joke. While it might be amusing for him, the common man - a retail investor is betting their hard-earned savings based on their trust in Musk. His words impact 45 million Twitter followers, who consider his words to be golden financial advice, no longer limited to mere entertainment. This brings me to my second problem: considering that a joke by the richest person in the world has caused such a market reaction leads to the question of lack of accountability in terms of the consequences of his actions. This is a concern not limited to Musk but extends to all possible public figures who enjoy considerable influence over the masses.

In these circumstances, the cryptocurrency prices witnessed a bullish trend and everyone gained. But what if the converse were to take place? A negative tweet could crash prices, wiping out savings. The other fact of the matter is, markets are efficient in the long run i.e. prices always revert back to the norm. In all these scenarios, more often than not, the small retail investors lose out.

A possible remedy could come from analysing the regulatory measures. However, even that fails to suffice, which is the third problem in this situation. The U.S. Securities and Exchange Commission has a definition of what constitutes Market Manipulation. Traditionally, if (1) persons created a false sense of volume and interest or (2) Spreading false information to drive a stock price up (or down) in the form of a pump-and-dump scheme (Bruce Brumberg, 2021), then they can be investigated upon. However, stating your personal opinions on social media, where the intention and information are clearly stated does not fall within the ambit of current legislation.

The frequency of news flashes claiming the correlation between cryptocurrency valuation and Musk’s tweets is only increasing. It inherently questions the credibility of the actual value of the cryptocurrency. While these apprehensions exist, regulating an individual’s ability to express one’s thoughts on social media infringes upon their freedom of speech. It also restricts the freedom of markets and their interaction with retail investors. The only way forward then is to call for the rationality of investors. Retail investors have to consider all the factors, especially the volatility while investing in cryptocurrencies.


Ante, Lennart (2021) How Elon Musk's Twitter Activity Moves Cryptocurrency Markets (February 3, 2021). Available at SSRN:

Written by: Ananya Dhanuka (

Edited by: Ayush Bakshi


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