Bitcoin was pinned near its lowest in more than two months on Friday and headed for its worst week since February, while dogecoin leapt by a fifth as tweets from Tesla boss Elon Musk sent the two cryptocurrencies on a wild ride.
Markets have gyrated to Musk tweets for months since his interest in dogecoin sparked a 100-fold rally in the previously ignored token’s value this year, while Tesla’s US$1.5-billion bitcoin purchase helped it break past $50 000 in February.
Yet, in an equally surprising U-turn, he dented the world’s biggest cryptocurrency this week after announcing Tesla stopped accepting bitcoin in payment owing to environmental concerns, making investors uneasy about Musk’s influence on crypto prices.
Bitcoin is down nearly 15% this week at $49 804.
Dogecoin is down about a third since last Friday, having tumbled after Musk referred to it as a “hustle” on Saturday Night Live. It then jumped 20% after his latest comments that he was involved in work to improve its efficiency.
“Working with Doge devs to improve system transaction efficiency. Potentially promising,” Musk said on Twitter, vaulting dogecoin from about $0.43 to $0.52 on the Binance exchange.
It was unclear if Musk was referring to efficiency in terms of energy use, ease of use or suitability as a currency, said Mark Humphery-Jenner, an associate professor of finance at the University of New South Wales business school in Sydney.
Almost worthless in late 2020, dogecoin is the latest darling of a frenzy gripping crypto markets that began last year as institutional investors announced big bitcoin purchases.
It has surged to become the fourth largest cryptocurrency by market cap, according to CoinMarketCap.com. Second biggest cryptocurrency ether has also soared more than 400% this year. It last sat at $3 865, steady for the week so far.
Musk’s tweets and the market’s response may invite attention, said Edward Moya, an analyst at brokarage Oanda. “Tesla is drawing tremendous scrutiny for Musk’s cheerleading of bitcoin,” he said. “If Tesla unveils a bet on dogecoin, regulators may have their eyes on Musk.”
Others, however, say the market might be more comparable to an old fashioned bubble.
“Dogecoin remains a lesson in greater fool theory,” said David Kimberley, analyst at investing app Freetrade, which posits that buying overpriced assets can be profitable, so long as there is a “greater fool” to buy them at ever higher prices. “It’s being pumped by people that want to get rich quick (and Elon Musk),” he said. — Reported by Hyunjoo Jin, with writing and additional reporting by Tom Westbrook, (c) 2021 Reuters