Emily Parker is a managing director at CoinDesk, a former policy planning staff member at the State Department and the author of “Now I Know Who My Comrades Are: Voices From the Internet Underground.”
This makes the $1.5 trillion crypto market look chaotic and unsafe for new investors. It virtually guarantees unwanted attention from regulators. And it goes against the core philosophy on which bitcoin, the world’s leading cryptocurrency, was founded.
Bitcoin, which people can use to pay for everything from pizza to real estate, was designed to be relatively free of centralized control; it came into the world following the 2008 financial crisis, when many had lost faith in governments and banks. New bitcoins are created via “mining,” a process powered by computers worldwide, and bitcoin transactions are recorded on a blockchain, a distributed ledger with no single point of failure. No government controls bitcoin, and no government can shut it down. To devotees, therein lies its beauty.
No one knows precisely what moves crypto prices, but Musk certainly seems to be playing a role — and by extension may be endangering the decentralized ideals of the market. Not long after he announced in February that Tesla would invest $1.5 billion in bitcoin, the price of one bitcoin hit a high, crossing $50,000 for the first time. Then, this month, Musk changed tack: Citing the environmental cost of bitcoin mining’s use of computing power, he announced that Tesla would no longer accept payment in the currency. Bitcoin’s price crashed soon after. This week, he may have helped push bitcoin’s price up by tweeting about mining’s “promising” renewables usage, while sparking accusations of centralization for spearheading a new Bitcoin Mining Council.
Musk may wield even greater influence over dogecoin, a Shiba Inu-themed cryptocurrency that started out as a joke. He has repeatedly expressed his affection for the token. Ahead of his May 8 appearance as host of “Saturday Night Live,” its price shot up. Then it tanked — perhaps because Musk joked about its being a hustle, perhaps because speculators thought they were selling at the cryptocurrency’s peak or perhaps just because dogecoin moves in mysterious ways.
But if ordinary investors start losing their savings after claiming to have fallen under Musk’s spell, lawmakers will raise an alarm. And whatever action might follow could make it harder for Americans to trade crypto and discourage crypto businesses from operating in the United States.
This matters because it’s increasingly looking like digital currency is here to stay. Institutions from JP Morgan to PayPal (where Musk was a chief executive) to BNY Mellon, America’s oldest bank, are getting into the game. Based on a belief that digital currency is the future of finance, governments around the world, from Singapore to Switzerland to Malta, have been competing to enact crypto-friendly policies to create jobs, attract talent and establish themselves as leaders in crypto innovation.
Crypto exchanges are already regulated in the United States, though rules vary state by state. But if the U.S. government were to decide the crypto industry was out of control, there are ways regulators could make it harder for investors to access the market. This might include initiating accredited investor rules, for instance, or restricting which products the exchanges can offer.
Hester M. Peirce, a crypto-friendly commissioner at the Securities and Exchange Commission, has perhaps best summed up the stakes, having long warned that the United States needs more regulatory clarity on crypto. When I once asked her why this was important, she said, “I don’t want to lose that whole generation of people, with all of that talent, who are thinking about problems in a new way — to another country.”
Musk’s recent behavior might have been disruptive to crypto exchanges. But is it market manipulation? That’s unclear. “Musk is not the first celebrity to tweet ‘celebratory’ and ‘forward-looking’ statements about crypto,” said Yankun Guo, a partner at Goldstein & McClintock who specializes in securities law related to cryptocurrency. “Unlike other social media influencers and celebrities that have gotten in trouble with the SEC, Musk was not paid by any of these tokens projects to boost up the price.”
He might not be the only one moving markets via social media (remember GameStop?), but even if these actions aren’t illegal, they are drawing scrutiny from regulators and Congress. This month, the SEC tweeted a reminder that investors shouldn’t be swayed by celebrity endorsements. More significant, Gary Gensler, the new SEC chairman, has said the SEC needs to “freshen our rules” to ensure that while individuals have the right to speak, “they’re not manipulating the public, manipulating the markets.”
Crypto regulation isn’t a bad thing. But overregulation could stifle the industry, potentially making the United States less competitive. Musk is famous for waging war on regulation. Yet, his actions threaten to inspire the kind of regulatory obstacles he would almost certainly want to avoid.