Hey Taylor: I’ve been watching Bitcoin and other cryptocurrencies go through massive price swings, and it gives me pause with the whole thing. It seems like Elon Musk can just tweet something and change the value drastically. – Juan
Hey Juan! Look, you’re not wrong. The excitement around Tesla, Bitcoin, and Dogecoin means Elon Musk has the power to raise eyebrows just by posting his thoughts online. I agree it’s a little unsettling, but it’s worth taking a step back and thinking about all the different angles to this equation.
Real-time speculation. Crypto’s volatility comes from its ambiguity. You can make a handful of transactions with Bitcoin, but we still don’t have a universal practical application to anchor this type of money in our daily lives. When the Tesla CEO says people can buy Teslas with Bitcoin, that’s a huge step toward a practical, tangible exchange. When he later says Tesla won’t accept Bitcoin, it feels like a step backwards even though the changes hadn’t really been implemented yet. I think we can still expect to see a lot of financial growing pains with crypto, so no one should be surprised by giant fluctuations in price as big announcements get made.
Environmental impact. In abandoning his plans to accept virtual coins for cars, Musk cited the fact that Bitcoin mining isn’t particularly eco-friendly. If you hadn’t heard, the super computers mining coins through complex mathematical equations use a ton of energy. It’s hard to compare the environmental impact of Bitcoin mining versus powering a large banking building, but the energy consumption is definitely substantial. People have known about this for a while and there are some efforts to use cleaner power sources, but that doesn’t change the fact that when someone with a big platform makes a statement about this issue, the markets will react.
Information overload. This all comes down to a bigger investing issue that we’re grappling with more and more. Social media reaches every corner of the globe; a popular figure saying something important on Twitter or Facebook or TikTok means we’re all going to hear about it. Like stocks, crypto investing is reactionary; so depending on who’s doing the talking and what they’re saying, the financial impact can be extraordinary. People talk about whether or not this is market manipulation, but it’s hard to view it as anything other than freedom of speech. The internet has always been a hard thing to regulate, and this is just another version of that struggle.
Investments can be fickle. Sometimes we just have to ride out the lows to enjoy the highs. Good luck!
Disclosure: Information presented is for educational purposes only and is not an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. To submit a question to be answered in this column, please send it via email to Question@GoFarWithKovar.com, or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.
