My thoughts on crypto trading, gut feeling and ... Elon Musk

I've said it some few times already, I believe that those of you who does a lot of trading between different crypto assets and actually earn money on it (particularly those of you who earn more than what you would have earned if you had been buying once, hodled for years and then sold), are simply lucky - and that by average, one should expect to lose some by every transaction when doing speculation based on gut feeling.

Whatever information you may have, there are bigger fishes out there that have better information, actors that are able to manipulate the market rate. With crypto currency it's easy to trade anonymously, and there are no regulations protecting the smaller traders neither against market manipulation nor that people who have first hand knowledge about news that may affect the market rate will buy/sell before the rest of the market learns about the same information.

Pumpety Dumpety

Elon Musk
This what a big fish looks like

Here is a guy that is very able to manipulate the markets. A single tweet from him may cause the market rates to move significantly, he is in a position to create the news that affects the markets - and the latest news from him makes no sense at all to me:

  • First Tesla was buying bitcoins and opening up for receiving payments in bitcoin. Fair enough. My thought back then was ... of course Musk must have bought quite some bitcoins privately before the announcement. Anything else would be stupid, and Musk is not stupid. I also had a second thought, that he may be simply using Tesla as a tool for increasing the value of his own crypto assets. It does not even need to be anything malicious about that; every hodler wants their crypto assets to grow in value and wants to do everything they can to make the crypto project successful. If I had owned Tesla, I would also have made them accept crypto currencies and asked them to diversify some of their liquidity into crypto assets.

  • Shortly after, Elon Musk announced that Tesla won't be accepting Bitcoins anyway due to the environmental impact. I assume Musk has the possibility to privately buy/sell/trade larger amounts of crypto currency anytime he wants, without anyone knowing - and again, it would be plain stupid not to sell bitcoins before making such an announcement. It could be a honest move, it could be that Elon Musk got new information during this short time, and realized that it was a mistake to endorse bitcoin. But still, to me it looks very suspiciously to say "Bitcoin is great!" in one moment, just to turn around and say "Bitcoin is bad!" in the very next moment. To me it looks like he needed some extra cash, and used Tesla as a tool for creating a classical pump & dump.

  • In the tweet he hinted that Tesla possibly would accept some other, more environmentally friendly crypto in the future. Shortly afterwards he tweets that he is sponsoring Dogecoin development, to make it "more efficient", and the market rate of Doge jumps up with 16% almost instantly.

Everyone with a little bit of insight into the crypto world knows that Doge, as a Proof-of-Work cryptocurrency, has the same energy problem as Bitcoin. The energy spent on mining Dogecoin is roughly propotional with the value of the Dogecoin, just like the energy spent on mining Bitcoin is roughly propotional with the value of Bitcoin. It is possible to read between the lines that Musk wants to do help reducing the energy consumption of Dogecoin so that it can be accepted by Tesla - but that's impossible, the energy problem can only be "solved" by redefining what a Dogecoin is - and then it's a lot better to choose another cryptocurrency from the start. What's the point with Doge anyway ... I still consider Dogecoin as nothing but a parody on Litecoin and other altcoins appearing at that time - people would take the Bitcoin code, tweak some of the parameters, announce that they have invented a new crypto currency and eventually getting rich.

I'm a great fan of Hanlon's razor - never attribute to malice what can be sufficiently explained by stupidity. The problem is just, Musk is definitively not stupid - and he is also an expert on earning money. I really wish I would come to another conclusion, but to me it seems obvious - Musk is deliberately manipulating markets to earn money - and that is malice in my book.

The null-sum game

So, with the assumption that Elon Musk is not stupid, and that Elon Musk is an expert on earning money, he must have taken advantage of his possibility to manipulate the markets and has earned big money doing so. Crypto trading is sort of a null sum game - when someone earns money, someone else must be losing money. So who are the people that have just been given a bunch of money to Elon Musk?

I believe he has received money from two groups of people - it's the people who are trying to earn for a living through "crypto trading", buying and selling assets based on a "gut feeling". The tweets from Musk have for sure impacted the "gut feeling" of quite a lot of traders. The other group is the "outsiders", people who haven't traded crypto before, or perhaps have been hodling a small amount of bitcoins, who thought "now is probably the right time to buy some more bitcoins" after reading the tweets from Musk.

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