Elon Musk unmasks social media influence on markets once again

Elon Musk’s name caught the headlines during this past week for all the wrong reasons. 

 

The first time around, it was because of the news that astronauts on his SpaceX will have to wear nappies when returning to earth following toilet leakage issues. What a stroke of luck to have travelled to space, and everyone is asking you about diapers! 

 

Then, he asked in a Twitter poll whether he should sell 10% of his stake in Tesla [TSLA.O : NAS], to which 58% of the 3.5 million accounts that voted said he should. The eccentric billionaire has since sold about $5bn in shares amounting to roughly 3% of his Tesla holdings, just days after polling Twitter users. However, $1.1bn was already in train before the poll since last September. 

Documents showed that the sale of about a fifth of the shares was made based on a pre-arranged trading plan. 

 

Tesla is the world’s most valuable carmaker, with a stock market valuation of more than $1tn. The company’s shares fell by around 16% in the two days after the poll in a multi-day selloff that threatened the company’s position in the $1tn club. Tesla stock regained some ground of 4.3% on Wednesday.

 

While Tesla has lost close to $150bn in market value this week, retail investors have been net buyers of the stock.

 

Tesla is now up more than 51% in 2021, thanks largely to an October rally fuelled by an agreement with rental car company Hertz.

Elon Musk unmasks social media influence on markets once again

Social media & financial markets – A soulmate relationship

This is not the first time that Elon Musk has used social media in a way that looks like market manipulation. 

 

Elon Musk’s tweets moved markets twice this year. First, in January, Bitcoin’s value jumped more than 20% after he changed his personal Twitter bio to #bitcoin.

 

Also, in January, the Tesla and SpaceX CEO fueled the frenzied surge in GameStop shares when he tweeted “Gamestonk!!”. The made-up word is a combination of GameStop and “stonks,” a slang term for stocks.

 

Some investors are calling on regulators to get involved. In addition, a discussion has started on the legitimacy of the practice and if it is legal to enrich himself with one tweet.

 

It seems that financial markets have their own influencers, like the beauty and fashion industry. Likewise, social media influencers have encouraged retail investors to jump into meme stocks such as AMC and GameStop and specific cryptocurrencies, pushing prices beyond fundamental values.

 

The Federal Reserve reported the trading action of such stocks and decided that social media had driven risk appetites in equity markets.

 

Social media has forced the financial world to evolve as users realise that such platforms can affect market activity. On the one hand, information sharing and discussion may improve market efficiency and transparency. But, on the other hand, there is always the risk that malicious actors may manipulate markets and price formation through misinformation and disruption.

 

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