Behind Bitcoin and Elon Musk
Thousands of Bitcoin investors got rich because of Elon Musk's tweet, and soon fell into poverty because of Elon Musk's tweet. Then rich again, then poor again. Haha, how can Elon Musk play with the price of Bitcoin? Is Elon Musk the owner of Bitcoin?
The answer is of course no, Bitcoin itself is the first cryptocurrency and is one of the various types of cryptocurrencies for now. Cryptocurrency is a digital asset designed to work as a medium of exchange, records of holdings of individual coins are stored in a digital ledger that exists in the form of a computerized database using strong cryptography. This cryptography is required for transaction records, to control the generation of additional coins and to verify the transfer of coin holdings.
Cryptocurrency is created by a group of people who are great at digital cryptography. Bitcoin itself was created by Satoshi Nakamoto who is still not even known who it really is.
The value of the cryptocurrency itself that determines is purely from the market mechanism. The government and even the creators themselves cannot intervene and control the value of the cryptocurrency. When people believe that the value of the cryptocurrency will increase, they will buy in droves, so that they can increase the value of the cryptocurrency. Meanwhile, when people worry about the future value of cryptocurrencies, they will sell it which will then decrease the value of the cryptocurrency itself. So, it is market sentiment that determines the rise and fall of the value of crypto money. That's why the value of cryptocurrencies can go up and down dramatically. But there are also cryptocurrencies whose value is pegged to physical assets such as gold, silver or paper money called Stable Coins. However, this currency looks less "sexy" in the eyes of investors.
Back again to the main problem, why would someone like Elon Musk influence the value of Bitcoin?
The answer lies in the theory of Narrative Economics developed by Robert Shiller, a professor of economics and a Nobel Prize laureate.
Narrative economics is a theory of how popular stories and the stigma that emerges in society can drive the economy.
In the early 17th century (in the 1600s) tulips became popular and became an exotic flower hunted by collectors. In a short time the demand for tulips outstripped the availability so the price went up. The popularity of tulips, whose prices are getting higher and higher, invites people to participate in buying and selling tulips, now in the midst of society a narrative emerges about people who suddenly become rich because of tulips. Eventually everyone started buying tulips. The demand for tulips is getting higher and higher, the price of tulips is getting crazier. At its peak a single tulip was valued the same as a Town House. Wow?! Even the whole buying and selling process without the tulips leaving the plantation is still planted on the ground.
Finally in early 1637 people began to lose faith in the future value of the tulip. The tulip narrative has changed. People panicked. They started to stop buying tulips while production was still going on. The price of tulips plummeted, bringing millions of people bankrupt with it.
Narrative is also what boosted the value of Bitcoin until now. Bitcoin is considered a hope. Hope to run an economic system without being shackled from a financial system that is considered ancient. Bitcoin is the promise of the future. And that's definitely an interesting narrative.
Early investors who bought Bitcoin felt they belonged to a group of enlightened and technologically savvy business people. They tell the Bitcoin narrative to their friends through various forums on the internet. Until finally it was raised to mass media such as TV and newspapers so that the public was also exposed to the crypto virus.
They flock to buy bitcoins and upload screenshots of the profits they get to social media. Artists are busy buying Bitcoin, experts also recommend that industry leaders buy Bitcoin, so more and more people are buying Bitcoin, even though they don't know what Bitcoin is.
Until the value of Bitcoin also rises and triggers an increase in other cryptocurrencies. The behavior of these investors is considered an irrational preoccupation by economist Alan Greenspan. The optimism that arises only arises from psychological factors. Human emotions can certainly trigger panic buying, confirmation bias, framing, overconfidence and the desire to always be up to date and don't want to be left behind. It is the emotional roller-coaster of investors that determines the price of Bitcoin.
Elon Musk's role in influencing the price of Bitcoin is actually as a "Smart Person". Because in the midst of uncertainty coupled with volatility in values that make us nervous, our natural response from a psychological point of view is to hold on to people who are more "smart". Moreover, Elon Musk and other Bitcoin influencers such as Mark Cuban and Jack Dorsey (CEO of Twitter) act as guarantors for the credibility of Bitcoin.
They believe in a bright future in cryptocurrencies. Bitcoin has become even more valuable since Elon Musk accepted Bitcoin payments for his Tesla car. Elon Musk is thus able to control the narratives that influence investor behavior, investors move markets, and markets determine the price of Bitcoin.
Now that's the reason why Elon Musk can change the value of Bitcoin with just one tweet on twitter even just by changing his bio.
Then the question now is, will trust in Bitcoin also fall like a tulip? The answer is in your own opinion.