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Dogecoin: What About Twitter’s Role in Market Manipulation?

So much was said about Twitter’s role in Donald Trump’s disinformation. But what to say of Twitter’s role in Elon Musk’s Dogecoin operation, lifting an obscure cryptocurrency by 1600% overnight?

Myret Zaki
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We’re living in a period where four days could equate four decades, in terms of the insane percentage rise we see in some asset prices.

Amid a climate of easy money, hyperspeculation and Reddit-made GameStop frenzies, a cryptocurrency that was originally explicitly launched as a parody was lifted up by 1600% in a matter of days, and after a few tweets: Dogecoin.

Dogecoin price

Only a month ago, Dogecoin was worth 20 times less. At this distant era, it was unknown outside the crypto or Reddit communities, and its price was stagnating since 2013. Initially born as a joke among friends, created precisely to mock the proliferation of dubious crypto coins, the Dogecoin certainly never aimed to become today’s 10th largest cryptocurrency.

Its rise to fame owes everything to Twitter. And to one person in particular using Twitter. A crypto guru? No, an electric and space vehicle constructor: Elon Musk. The billionaire founder of Tesla suddenly fell in love with the most unlikely altcoin, for no other reason than the fun of it. He got started with one tweet on February 4, posting the image of a rocket and just one word: «Doge».

And the price went ballistic.

There was nothing comparable before Twitter

Before Twitter, we never had such a situation, in which a $200 bn rich individual could send an investment hint to 46 million people and shake a price within seconds. Then Musk kept firing several tongue-in-cheek tweets about that same coin, and it gained 50%.

The following days he retweeted himself, trolling his own feed, euphoric, obsessed with the Dogecoin (or with his own power to move the price at will).

Supposing Elon Musk invested in Dogecoin in January and waited for President Biden’s inaugural speech to pass, in order to start hyping the Dogecoin with those punchlines: his investment has gained 1600% year-to-date, after a few effortless tweets. The buzz it made, the chatter, the speculation about whether he was serious, all benefited the Dogecoin price.

It is the same pattern we see in fans gossiping about their Instagram influencers or about British royals giving away a mysterious detail in a tabloid photo, that triggers all sorts of debating or copying.

But Twitter brings us into another dimension. Four years ago, the financial world had discovered the effect of Donald Trump’s tweets when they targeted airlines, pharmaceutical companies or other listed sectors. Now we are seeing the even bigger impact that the number one US businessman can have on some investment markets.

A language modelled on the crypto culture

Musk’s Dogecoin tweets took very lightly an issue that is serious because it is involving the money of many. His tweets were as facetious as the altcoin itself. Some slogans like «No highs, no lows, only Doge», had a parodic, self-mocking feel. Never speaking of fundamentals or anything substantial, Musk tweeted puns like «Who let the doge out» and got 700'000 likes for it, while the whole Dogecoin community was half that figure.

The shorter the tweet, the better. The shallower, the cooler. The language was that of a typical youngish, geekish crypto-fan tweeter. Not an old-style Warren Buffett language, but one completely in line with the young crypto online culture.

Those few teases by the wannabe crypto-trendy entrepreneur were enough to propel the price of Dogecoin on a vertical path. The time had actually been ripe right before Musk entered the scene. On January 29, Dogecoin had soared over 800% after a crypto Reddit group, SatoshiStreetBets, talked about mounting a Dogecoin operation similar to GameStop. But this speculative build-up quickly fell back, and it was Musk’s tweets, as of February 4, that managed to build the real momentum.

Dogecoin’s January spike and drop, and the February surge

In other words, Musk decided to enter the Dogecoin playground for some recreation. He perfectly used the whole array of crypto memes, puns, emojis and mannerisms, and he won the game. But all people are not equal on Twitter. Were he now to sell big amounts, that would leave victims on the way. In theory, he could, because market manipulation through Twitter is a new thing, and it is hardly regulated on crypto markets. This is a real issue.

Market populism at play

We can describe what Musk did as a form of «market populism», with slogans such as «Dogecoin is the people’s crypto», tweeted by someone who can handle way more risk than most of his audience.

Just like Trump has been blamed for disinforming people through Twitter, it can be considered that Elon Musk abuses the leverage Twitter offers him to mislead the masses into believing in the value of a coin in which he himself didn’t necessarily believe. Again, he could afford to lose a bit, but many of his followers could probably not.

The question should be raised whether Twitter or Musk can be held accountable, and whether regulation needs to be designed to contain Twitter’s high potential for price manipulation by big entrepreneurs or investors. For now, all we can do is try and guess: Was it a planned market manipulation? If Musk bought for himself or for Tesla a bloc of Dogecoins or of futures contracts before he started hyping the coin, that would be a case of price manipulation, using his 46 million Twitter believers to build himself a quick gain.

He had actually rehearsed his Twitter effect on the Dogecoin price already on December 20, when he tweeted «One Word: Doge», which sent the price up 20%. That gave him a preview of his trend-setting potential in the crypto space, as he could measure his impact on the price. And with the incredible February operation, he was left hilarious at the plebiscite the market gave him every minute. In the end, multilayered jokes turned into an actual investment.

People are investing in a super-risky asset

True, Musk might sincerely love the ironic narrative, that while the Dogecoin was created to make fun of cryptocurrencies, it could become the planet’s first currency in the future, and he would have been part of this. But while he’s having a good time spreading this fantasy, people are investing along with him in a super-risky asset, helping him pump the price up. Clearly, there is a notion of public responsibility at play here, that got lost in the way.

This episode tells us a lot about the power of prescription created by the digital world. It shows the tremendous power of trendy billionaires to render anything «cool» and overlook the risks (that are small to them), while digital herd behavior exposes people to risks they in turn can’t afford.

And while everyone was busy following this nonsense Dogecoin diversion, Elon Musk’s company, Tesla, was buying $1,5 bn in Bitcoin throughout January, and made it official only on February 8. The announcement, seen as a major endorsement, immediately earned Tesla’s investment a 13% gain.

Myret Zaki

Myret Zaki started in 1997 as a junior analyst in a Geneva private bank where she learnt the basics of equity research, before joining the daily newspaper «Le Temps» in 2001, where she was in charge of the finance section for 9 years. When the financial crisis broke in 2008, she wrote the investigative book «UBS, am Rande des Abgrunds» (originally published in French as «UBS, les dessous d'un scandale»), for which she received the Schweizer Journalist prize. She joined «Bilan» magazine in 2010 where she became Chief Editor from 2014 to 2019. Between 2010 and 2016, she wrote three other bestselling books, about Swiss banking secrecy, the end of the Dollar reserve status, and the rise of the shadow banking system. She has a Political Science Bachelor from the American University in Cairo and an MBA from the Business School of Lausanne. She is now head of the Communication faculty at the School of Journalism and Media in Lausanne.
Myret Zaki started in 1997 as a junior analyst in a Geneva private bank where she learnt the basics of equity research, before joining the daily newspaper «Le Temps» in 2001, where she was in charge of the finance section for 9 years. When the financial crisis broke in 2008, she wrote the investigative book «UBS, am Rande des Abgrunds» (originally published in French as «UBS, les dessous d'un scandale»), for which she received the Schweizer Journalist prize. She joined «Bilan» magazine in 2010 where she became Chief Editor from 2014 to 2019. Between 2010 and 2016, she wrote three other bestselling books, about Swiss banking secrecy, the end of the Dollar reserve status, and the rise of the shadow banking system. She has a Political Science Bachelor from the American University in Cairo and an MBA from the Business School of Lausanne. She is now head of the Communication faculty at the School of Journalism and Media in Lausanne.