The regulation of cryptocurrency will be a hot topic during the next few years. A new case by the Securities and Exchanges Commission (SEC) provides us with a glimpse into this near future.
What happens when someone with a large following makes a powerful financial claim? Elon Musk’s tweets may reportedly be at the core of a new SEC investigation. Musk is no stranger to SEC investigations. Tweeting that he could take Tesla private at $420 a share, he misleads potential investors. He sent this tweet before this was a certainty. Although this ended up being a weed joke, he later settled these charges for $40 million. Now he may be in hot water after tweeting about a meme currency called Dogecoin.
Musk’s tweeting leads to an unexpected rise in the price of Dogecoin, from around $0.005 to over $0.08 in early 2021. At one point, he even changed his Twitter bio to read CEO of Dogecoin. The price of the altcoin increased as celebrities came out of the woodwork to endorse it. But many would argue that the price hyperinflated, it simply wasn’t worth that much money. Even its original creator was baffled when he heard about this rise. People may have bought into the cheap asset to quickly double or triple their investments.
Some people also suspected that an address, owning 27% of all the total Dogecoin was Elon Musk. Later this address was sending strange transactions, which may hold an encrypted message. Despite all the tweeting about Dogecoin, Musk’s company Tesla Motors invested $1.5 billion in Bitcoin. He also urged people holding large amounts of Dogecoin to sell. So we have a strange series of tweets followed by big moves on the market. There are a lot of parallels so far with the SEC’s previous case alleging fraud over Tesla stocks. Of course, no internet story is complete until a Redditor finds encrypted messages.
Right now, many altcoins like Dogecoin are not considered securities. They are tradeable financial instruments used to raise capital. It implies the price of securities is tied to the valuation of the company. When the SEC and its jurisdiction were first defined, cryptocurrency wasn’t around.
All this means the SEC cannot currently charge Musk for market manipulation. Compared to securities, there are a lot less stringent laws regulating cryptocurrency.
Could these tweets show actions to pump and dump Dogecoin? Or was he testing the waters about Tesla Motors investing in Bitcoin? Since the addresses are anonymized, we don’t know if Musk profited from these tweets. If someone is making a case, it would be challenging to prove malicious intent.
- Amateur investors would not know that the CEO of Dogecoin is a joke. They might take the recurrent tweets as an endorsement of their value.
- Millions of people see these tweets, purchase Dogecoin, and the price goes up.
- Tesla Motors invests big in Bitcoin.
- Musk tweets that large Doge holders should sell.
If the SEC is successful in their case against XRP, it could affect a potential investigation into the Doge tweets.
Whether intended or not, Musk did overinflate the price of Dogecoin. People did buy Dogecoin because of his tweets, causing it to rise. Some people lost a lot of money. When you have millions of followers on Twitter, you have an immense influence. We need better laws to keep pace with technology to protect potential investors in cryptocurrency.