The ‘Elon Musk Effect’ caused a shift in investing pattern

Musk’s tweets have brought  some wild moves in the financial markets recently, sparking a new wonder

Musk has long been a prolific user of social media and has a strong familiarity with the online culture. The electric-car pioneer has been known to stir up some trouble with his tweets — In 2019 Musk had to pay a high price for a settlement with SEC (Securities & Exchange Commission) after his infamous “funding secured” tweet to take Tesla private at $420 a share. One thing’s for sure, that saga hasn’t stopped him from being “himself” on Twitter.

Coming back to some of the most volatile moves in the recent financial market were precipitated by the World’s richest person tweeting to his 44 million users — although the messages this time were much more subtle than the 2019 event. First the most shorted stock on the U.S market GameStop, then Bitcoin, and eventually DOGE coin.

But Musk might not be the pioneer in moving financial markets with his tweets. If you haven’t forgotten already, the ex-US President Trump used to be fixated on the performance of the stock market and used to tweet a lot! And being the President of the U.S, his tweets used to have a major impact on markets. So much so that JPMorgan came up with the Index to measure the market reaction to Trump’s tweets. I wrote about the Volfefe Index, back in 2019.

The aftermath has been horrendous — big hedge managers lost billions of dollars, trading apps halted trades, regulators & lawmakers got involved and in the end, the stock eventually lost most of the gains. Then Musk said that he was a “supporter” of Bitcoin in an interview carried on an audio-based social media app, Clubhouse. All he had to do was add #Bitcoin to his Twitter profile and the BTC price ticked up a few thousand dollars in a matter of hours.

And finally, Dogecoin’s price rose by 50% on 4 February shortly after Musk, tweeted that “Dogecoin is the people’s crypto” — along with this picture of himself and dogecoin in Disney’s The Lion King. The volume of trading more than tripled over the course of the day. DOGE coin that was started in 2013 as a joke to imitate Bitcoin has caught on and now has a market cap of $5.8bn, at the time of writing (14th largest crypto).

Anyways, Cryptos are used to this kind of volatility and hype that stirs the digital space every now & then, but the mayhem that the legacy financial markets witnessed was something out of the ordinary. The digital disruption caused by the use of the latest technology (smartphone, commission-free apps & social media platforms) has made retail traders a force to reckon with. Days of big money managers & institutional traders running the show might be numbered.

Something considered unfathomable a few years ago might be the new reality with the paradigm shift that’s happening. And as I like to call it, the ‘Elon Musk Effect’ might have proved to be the catalyst in bringing about this change.