Elon Musk’s tweets have created a new economy
- Elon Musk pumps everything from Dogecoin to dog hats on his personal Twitter account.
- Musk’s tweets can cause all sorts of cascade effects, creating spontaneous markets to form.
- Despite a 2018 settlement with the Securities and Exchange Commission over his tweets, experts said Musk is unlikely to face new legal problems unless his comments directly impact Tesla.
- See more stories on Insider’s business page.
Jerron St. Armand was asleep at his home in New Hampshire when Elon Musk first tweeted about Etsy.
St. Armand, who works full time as an engineer, opened his own Etsy store in 2020 as a quarantine hobby. He sells toys and accessories that he imports from China, none of which is specifically tied to the “Looney Tunes” character.
But as he watched the price of Etsy’s stock shoot up nearly 10% before markets opened, he decided to try his luck at the Elon economy.
“I was like, ‘Hey, I sell dog hats!”https://www.businessinsider.com/” said St. Armand, who added the text of Musk’s tweet to his listing for a knitted cotton dog balaclava. “It kind of worked.”
Visits to his shop spiked as curious Musk followers looked for the hat. His daily page views at the end of January were up around 400%, from 60 to over 300. So far this year, he’s sold 19 knitted dog hats, sales comparable to the busy Christmas rush.
The dogwear sales are a small-scale manifestation of a broader business phenomenon that has developed alongside Musk’s success. A loyal crowd of the celebrity CEO’s fans, many of whom will never buy anything produced or sold by one of Musk’s companies, treat his frequent tweets as inspiring calls to action, sending ripples of demand in the direction of whatever Musk mentions.
This year alone, Musk’s tweets have spiked the price of the cryptocurrency Dogecoin and have contributed to a massive surge in downloads of the encrypted messaging app Signal. He has spurred a global arms race to develop carbon-capture technologies and has left superfans straining to decipher absurdist puns in search of hidden financial advice. Even the makers of “Evil Corp,” a board game created as a protest against powerful tech billionaires, promoted the game using a tweet from Musk that endorses the game’s name.
Unlike traditional celebrity endorsements, or experts in a field whose moves are widely emulated (think investors piggybacking on Warren Buffett’s trades), Musk wields his influence with no clear motive or pattern. The 49-year-old CEO, who regularly trades spots with Jeff Bezos for the title of the world’s richest person, is as likely to plug a stock or a product as he is to make a puerile joke.
Sometimes he shows a troller’s delight in pumping something controversial — as he did when jumping in on the GameStop frenzy in January — other times, his league of 49 million followers seems propelled by its own logic, finding meaning in random comments.
The result is a spontaneous and unpredictable market that ebbs and flows according to Musk’s musings, often with dramatic results. The phenomenon has invigorated Musk’s followers, incentivized opportunists, and exasperated those who see reckless speculation in the personality-driven marketplace.
“He doesn’t seem to understand or care that tweeting can have an impact on the ordinary investor,” said Stephen Diamond, an associate professor of law at Santa Clara University who advised pension funds invested in Tesla during a dispute over Musk’s tweets in 2018.
Musk pumped Dogecoin to a $10 billion market cap
For all his tweeting, Musk is a busy man. The entrepreneur, who was born in South Africa, is the CEO of electric-car maker Tesla and the CEO of SpaceX, a space-exploration company. He also oversees The Boring Company, which builds underground tunnels, and Neuralink, a startup focused on building a brain-computer interface.
News and updates about Musk’s various companies are frequent topics of his tweets. But any number of Muskian passions or flights of fancy are also fodder for his feed. When Musk told his followers to use Signal in a January tweet, amid a broader user backlash against WhatsApp, a remarkable chain of events ensued. The Signal app was downloaded in the United States 2.9 million times that month, which was 10 times the number of downloads the month before, analytics company App Annie reported.
Meanwhile, shares of Signal Advance, a small component-maker whose stock trades on over-the-counter markets, surged 11,708% as some investors assumed Musk was plugging the unrelated stock. The company, which has one employee and has never reported revenue, suddenly had a market cap of $300 million.
Lately, Musk’s overriding obsession is a cryptocurrency inspired by a popular meme of a Shiba Inu dog, which began as a joke eight years ago.
Since early February, Musk has steadily tweeted memes and ironic aphorisms about Dogecoin (a purposeful misspelling of “dog”) to his millions of followers, proposing ideas for improving the coin, and explicitly taking credit for the massive upswing in its price.
“Ur welcome,” Musk wrote on February 4, alongside an edited image depicting him as Rafiki from “The Lion King” and the Shiba Inu as baby Simba. At the time, Dogecoin was nearing $0.04, a 395% increase from the week before.
By February 7, Dogecoin was trading around $0.09 a coin with a market cap of $10 billion.
The surge has been celebrated by Musk devotees, who churn out a constant stream of tweets cheering the cryptocurrency’s every milestone. But the surge has also sparked condemnation from crypto enthusiasts, who warn of a speculative bubble that will end badly.
“It’s sad how much money people are going to lose on dogecoin, when there’s so much real value and smart long-term investments they could be making in the crypto ecosystem,” tweeted Ari Paul, the founder of the cryptocurrency hedge fund BlockTower Capital.
‘Then Elon Musk started tweeting’
No one has been more surprised by Dogecoin’s Musk-fueled runaway growth than Billy Markus, a Bay Area engineer who is the cocreator of Dogecoin.
Markus created the cryptocurrency in 2013 as a parody of the incipient cryptocurrency craze. He spent three hours on the project, time mostly spent incorporating the font Comic Sans.
“We just decided to release it without much thought,” Markus said. It was never supposed to be a way to make money.
While Dogecoin gained traction and value among a tight-knit group within the crypto community in its early days, Markus moved on after a few years. He sold his crypto holdings in 2015 to pay his bills after he lost his job.
“Then Elon Musk started tweeting,” Markus said.
Markus suddenly faced an onslaught of negative social-media attention, occasionally from new investors demanding that Markus help them get in touch with the Tesla executive, who had at one point jokingly changed his Twitter bio to CEO of Dogecoin.
“Initially I just kind of went on Twitter to be like, ‘Guys, shut up … I don’t have any of the coin anymore. Please don’t spam my Twitter with threatening and sometimes ridiculous demands,”https://www.businessinsider.com/” Markus said.
Now he is trying to find some joy in the situation. He launched a video-game competition to get people building things, rather than just focusing on financial returns, and he started a viral hashtag to spread kindness on Twitter — #DoOnlyGoodEveryday, a “backronym” for DOGE.
In late February a rumor spread that the Securities and Exchange Commission was investigating Musk over his promotion of the coin. By then, it had lost half of its value from the all-time high. When the rumor reached Musk, he doubled down with chutzpah.
“I hope they do!” he tweeted on February 25. “It would be awesome.”
Representatives for Musk did not return requests for comment. The SEC declined to comment on the rumored investigation.
But is it legal?
Musk’s tweeting has landed him in hot water with authorities before.
In 2018, he settled securities-fraud charges with the SEC stemming from an off-the-cuff tweet he made about taking Tesla private for $420 a share. The tweet sent Tesla shares surging, even though there was no evidence that a deal for Tesla to go private was in the works.
Musk and Tesla paid a combined $40 million in fees to the SEC in the settlement. Though he remained the CEO of Tesla, he lost the role of chairman. He was also barred from tweeting market-moving information about the company without its lawyer’s approval. (Tesla’s oversight of Musk’s tweets is at the center of a recent shareholder lawsuit alleging that Tesla’s board failed to appoint an independent general counsel who could keep Musk in line.)
Nearly three years later, Musk is as prolific on Twitter as ever. But Thomas Gorman, a partner at Dorsey and Whitney who specializes in representing corporations facing government investigations, said Musk is most likely on safe ground when tweeting about cryptocurrencies such as Bitcoin.
“His problem is that he was talking about Tesla. It’s a public company,” Gorman said of Musk’s 2018 run-in with the SEC.
If Musk runs into any new legal trouble from his tweets about cryptocurrencies, experts said, it would likely be tied to Tesla, which owns $1.5 billion of Bitcoin on its balance sheet.
Still, Gorman said it would be difficult to make a case that Musk’s Bitcoin-related tweets have improperly benefited the car company.
“If he was the first one to put this out, and it had some material in impact on the [Tesla] stock, then he might have some sort of difficulties with that, depending on what he says,” Gorman said. But since Tesla’s Bitcoin assets are already publicly known, Musk has more leeway.
Since Bitcoin and most other cryptocurrencies are considered commodities, not securities, they are regulated by the Commodity Futures Trading Commission rather than the SEC.
When the CFTC prosecutes, it’s often in cases of fraud or manipulation. For example, John McAfee was charged with fraud earlier this month for pumping and dumping cryptocurrencies, Dogecoin among them. (McAfee also faces related civil charges from the SEC and criminal charges from the Department of Justice.)
There’s no indication that Musk has benefited financially from pumping Dogecoin. And even if he did make money, there’s nothing illegal about being bullish on your own portfolio, experts said.
High-profile promoters such as Musk — or Social Capital’s Chamath Palihapitiya on the public-markets side of things — are broadly protected, unless they explicitly try to make other people lose money for their own personal gain.
“Quite often, he’s just a randomly socially irresponsible person. And he happens to be a wealthy and powerful socially irresponsible person,” Diamond said. “That’s unfortunate for our society, but it’s not necessarily criminal or illegal.”
Green eggs and SPAC
In recent months, Musk has repeatedly used his Twitter account to downplay the risk of the coronavirus, including in a tweet on March 12 that cast doubt on the safety of a second dose of a COVID-19 vaccine.
(That tweet came a few hours before The Washington Post reported that around 450 of the roughly 10,000 workers at Tesla’s Fremont, California, factory tested positive for COVID-19 between May and December.)
Such tweets are further evidence for critics who say the CEO’s freewheeling and contrarian comments have real-world consequences.
Musk’s one-word “Gamestonk!!” tweet in January poured fuel on the fire of the Reddit-inspired buying frenzy of the game company’s stock. The stock later plunged 87% from its all-time high, though it has since regained some ground.
But the economy of attention and capital built around every random Musk musing shows no sign of cooling down.
On March 1, Musk fired off a particularly cryptic tweet that left both fans and business journalists running in circles to explain its significance.
Many admitted defeat.
“Whenever he says something, we report it, and we try to figure out what he is saying,” Stuart Varney, an anchor at Fox Business, said in one segment on the tweet. “It’s just so vague, isn’t it? I don’t know what he’s talking about.”
Even as pundits struggled to make sense of Musk’s curious comment, other wheels of the Elon economy kicked into gear. Within an hour of Musk’s tweet, a cotton T-shirt appeared online with the words Green Eggs & SPAC written in a Dr. Seuss-inspired font. Its price: $21.