Bitcoin hits 3-month low and then rallies on Musk tweets

Published May 17, 2021
The logo of the Bitcoin digital currency is seen in a shop in Marseille, France, February 7, 2021. — Reuters
The logo of the Bitcoin digital currency is seen in a shop in Marseille, France, February 7, 2021. — Reuters

Bitcoin rallied from a three-month low on Monday in a volatile session that saw investors initially selling and then buying cryptocurrencies in the wake of Tesla boss Elon Musk's tweets about the carmaker's bitcoin holdings.

In his latest tweet, Musk said "Tesla has not sold any bitcoin". That seeming clarification came after weekend tweets hinted that Tesla was considering or may have already sold some of its massive holdings.

Musk has boosted crypto markets with his enthusiasm for the asset class, but has lately roiled trade by appearing to cool on bitcoin in favour of its one-time parody, dogecoin. The gyrations are beginning to spook even steeled traders.

Bitcoin fell more than nine per cent on Monday to as low as $42,185, its lowest since February 8, but rallied back to around $45,190.

Ether, linked to the ethereum blockhain, fell to as low as $3,123.94, and then bounced back to $3,540. Dogecoin fell nearly seven per cent, and all three are well under recent records.

"A nice pop, but this is small versus the Musk-induced selling that has been taking place lately," said Neil Wilson, chief market analyst at Markets.com. "There is nothing new I can say about bitcoin – volatile, highly speculative, easy to manipulate; a bubble."

Bitcoin, designed as a payment tool, is little used for commerce in major economies, hampered by high volatility and relatively costly transactions.

The most popular digital currency is now down a third from its record high in mid-April and JP Morgan's crunching of fund flow data shows investors exiting positions in recent weeks.

On Wednesday, Musk said Tesla would stop taking bitcoin as payment, owing to environmental concerns about energy use to process transactions. Defending that decision on Sunday, he suggested Tesla may have sold its own holdings.

An unverified Twitter account called @CryptoWhale, said: "Bitcoiners are going to slap themselves next quarter when they find out Tesla dumped the rest of their #Bitcoin holdings. With the amount of hate @elonmusk is getting, I wouldn't blame him..."

In response, Musk wrote: "Indeed."

It was not clear whether he was confirming sales or whether he referred only to the fact that he had faced criticism, until his clarification in Monday's tweet.

Musk said Tesla would not sell its bitcoin, but the cryptocurrency had dropped by almost a quarter since Musk's reversal on Tesla taking it as payment.

Dogecoin has also yet to fully recover from Musk describing it as a "hustle", although he did boost the price last week by saying he was working to improve its efficiency.

For an asset class that has surged this year, with dogecoin up about a hundredfold, ether up more than fourfold and bitcoin gaining 45 per cent, some are beginning to call time on the wild ride.

"Why would I want to buy bitcoin right now - even if I’m bullish - until the liquidation is over and you see some consolidation in price?" said Chris Weston of brokerage Pepperstone in Melbourne.

"I am closing the short-bitcoin/long-ethereum trade and moving to the sidelines," he added. "I feel the dust really needs to settle here."

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