Elon Musk's Tweets Make Some Sense Of Crypto Coins.. Why...?
Elon Musk's Tweets Make Some Sense Of Crypto Coins.. Why...?
Thousands of Cryptocurrency investors got rich suddenly because of Elon Musk's tweet, immediately fell into poverty because of his tweet, the next time they got rich suddenly again, how could Elon Musk play with that price...? What exactly does Bitcoin work like and whether the value of Bitcoin has started to bubble into Babylon which is about to break. The answer lies in narrative economic theory and irrational preoccupation.
In January 2021 Elon Musk changed his Twitter bio to a Bitcoin hashtag, within 30 minutes of that Bitcoin price rose to 31 percent and within one hour Bitcoin price rose another 13.9 and peaked in seven hours the price rose 18.990 percent, in February he announced has bought Bitcoin worth 1.5 billion dollars and Tesla will accept Bitcoin as a means of payment, the price of Bitcoin immediately rose 17 percent the following days the price of Bitcoin continued to skyrocket.
In May he linked that due to environmental reasons Tesla would not accept Bitcoin as a means of payment the value of Bitcoin immediately plunged 12 percent, speculation among investors that Tesla would sell all of its bitcoins, further destroying the value of Bitcoin in response to which he tweeted a diamond and a hand. Diamond Hands indicating he will not sell his Bitcoins.
Bitcoin price moved up again, the same thing also happened when he tweeted about Doge coin some time ago, in an instant the price of Doge flew very high, as well as Shiba Inu coin, how come...? Elon Musk is very powerful to understand this phenomenon, we need to understand first what Bitcoin is and how it works, then we discuss the theory that explains the irrational behavior of the market and the important lessons we can take from it. At the end we will answer Is it true that Bitcoin is now a bubble that is about to burst.
Cryptocurrency is a digital asset designed to function as a medium of exchange where ownership records to individuals are stored in a digital ledger that exists in the form of a computerized database using strong cryptography, this cryptography is required to secure transaction records to control the generation of additional coins and to verify the transfer of ownership. coin. According to investopedia, there are currently 4000 cryptocurrencies around the world, called currencies because they can and for transactions, although currently there are still a few business people who accept crypto money as a means of payment.
Bitcoin is the first cryptocurrency, on May 22, 2010, Bitcoin was used for the first time to buy two pizzas with ten thousand Bitcoins which at that time was only worth 41 US Dollars. Do you know What is the price of Bitcoin today. 1 Bitcoin costs 500 million rupiah so how much is that pizza today...? The most expensive pizza in the world.
Although it can be used as a transaction tool, most people buy crypto money like Bitcoin not to be used as a means of payment, but as an investment instrument. This is because crypto money which is getting higher and higher in value is different from the paper money we know, crypto money is not issued by the government and there is not even one institution that controls the spending and value of the crypto money. So who issues it and how is it controlled?
Crypto money was created by a person or group of people who are great at digital cryptography, Bitcoin was created by Satoshi Nakamoto who until now is still unknown who he really is, Etherium another popular cryptocurrency was created by Vitalik Buterin a young Russian, a 27 year old Russian-Canadian programmer , created etherium in 2013 when he was 19 years old. The cryptocurrency was launched in 2015, and now Buterin stores around 333,500 etherium in its public wallet.
The mechanism for issuing crypto money in this process is known as mining, while the value of crypto money itself that determines is purely a market mechanism, no party can control it, even we ourselves cannot intervene when people believe that the value of a cryptocurrency is will go up, then they will buy in droves so that it boosts the value of the cryptocurrency. Meanwhile, when people worry about the future value of the cryptocurrency, they will sell it which will then drop the value of the cryptocurrency.
So it is the market that determines the rise and fall of the value of crypto money, this is why the price movement of crypto money has a high level of volatility, in addition to being an attractive investment instrument, at least for now crypto money is also in demand because it is safe, private, easy and cheap, safe because until now Blockcha technology in which is used to run cryptocurrency cannot be hacked. The government also has no power over your crypto money, the government can't suddenly freeze your crypto money, like they freeze your account at a bank, for one reason or another.
Private because no one including the government can know how much cryptocurrency you have and what you have transacted for, only you know, it's easy because you can move your crypto money anywhere and to anyone in an instant, cheap because it's almost impossible there is a fee that you have to pay for the transaction or money transfer because unlike banks, transactions or money transfers do not use third party intermediaries at all, virtue dear.
These advantages are what make crypto money attractive to criminals, by using crypto money they can easily launder their money, are also free to carry out criminal transactions and manage their assets without being detected, despite the various advantages crypto money turns out to be not very liked by them. who want to use it as a means of payment. This is because the value fluctuates dramatically, you certainly don't want to miss buying a pizza with billions of rupiah worth of cryptocurrency a few years later.
Related to this, there is actually a solution, namely stable coin type crypto money, this is crypto money whose value is pegged to the value of physical assets such as gold, silver or paper money. Using stable coins you will get four advantages.
You will also feel wary of why because the value of your coin is stable, following the price movement of the physical asset that is the benchmark, unfortunately this stable coin type cryptocurrency is less popular than Bitcoin or Etherium, this is because it is less sexy in the eyes of investors, so life is less attractive.
We know that crypto money has high volatility because it purely follows market mechanisms, but that doesn't explain why someone like Elon Musk can play the value of Bitcoin on his own..? The answer to that question lies in the theory of narrative economics or narrative economics developed by Robert James Bob Shiller, Professor of economics and Nobel Prize laureate from Yale University.
Narrative economics is a theory about how popular stories that emerged in society could drive the economy in the early 17th century at that time, the tulip became popular as an exotic flower hunted by collectors in a short time, the demand for tulips exceeded its availability so that the price went up. The popularity of tulips whose prices are getting higher and higher invites the general public to participate in buying and selling tulips, in the midst of society a narrative appears about people who suddenly get rich because of tulips, finally everyone starts buying these flowers.
This higher demand has made the price of tulips even more crazy, at its peak, a single tulip is valued the same as a house and all the buying and selling process takes place without the flower leaving the plantation and still being planted on the ground. In early 1637 people began to lose faith in the future value of tulips, the narrative of tulips changed, people panicked, they began to stop buying tulips, while production continued, the price of tulips plunged massively, while bringing millions of people bankrupt with it.
The same thing appeared again at the end of the 20th century where the skyrocketing popularity of the internet boosted the market value of internet-based companies, at that time the internet was the future of the world economy, so internet-based business was a very promising investment, so the narrative circulating among investors at the time The thousands of companies born at that time were backed up by thousands of investors who didn't want to be out of date. Unfortunately, the majority of these companies do not have a clear business model, the value of their products or services has not been tested, but investors scramble to buy shares without conducting a fundamental analysis of the performance of the company whose shares they bought, finally after five years it moved up exponentially in 1099. The dotcom bubble burst in 2002. Investors lost money.
That's an example of how the constellations drive the economy, whether we return to Bitcoin, the narrative is also what boosts the value of Bitcoin, so like now Bitcoin is a hope for carrying out economic activities without being shackled from a financial system that is considered ancient. Bitcoin is the promise of the future and it is definitely a very interesting narrative, the early investors who bought Bitcoin, they themselves became part of a group of people who were enlightened and technologically agile, they shared the Bitcoin narrative with their friends through various forums around the world.
the internet until it was finally raised to the mass media.
After that the general public was also exposed to the crypto virus, they flocked to buy Bitcoin, then uploaded, screenshots of the profits they got on their social media, artists were busy buying Bitcoin, experts recommended industry figures to buy Bitcoin, then more and more people took part. -follow in buying Bitcoin, even though they don't know the tips, the value of Bitcoin is also getting crazier, the popularity of Bitcoin then triggers an increase in the value of other cryptocurrencies and the tremendous growth in the value of this cryptocurrency, Coinbase a cryptocurrency exchange platform conducts IPO with a very high valuation value. bigger than the New York stock exchange and the nasdaq combined.
Economist Alan Greenspan calls the behavior of such investors as irrational exuberant or irrational preoccupation, they describe market optimism that is unfounded and has no real foundation from a fundamental assessment of the assets being traded. Optimism that arises only relies on psychological factors, financial theory dictates that markets and investors are national, they have good self-control and are free from misinformation, but in reality this rarely happens because humans are emotional creatures, emotions can trigger panic buying cover version by yons freming, overconfidence and fear of missing out.
The manager of wealth management said that from a financial perspective, fear and greed have a big impact on trading patterns, that's why the value of Bitcoin can go up and down drastically, the emotional roller coaster of investors that determines the price of Bitcoin, not the real value of the asset itself. . But that still doesn't explain why one person like Elon Musk can play with the price of Bitcoin..?
To answer that question we need to understand two things first, first in an uncertain situation we need to hold the Bitcoin on a line of code on the computer, then it is difficult for us to determine what its real value is. What is the basic value of Bitcoin if we play stocks we will be able to do fundamental analysis based on three companies and their financial conditions, while Bitcoin how do we do fundamental analysis ..? what we can do is technical analysis based on historical data on price movements, which we know are strongly influenced by the emotions of investors, so that there is a rational reference that we can use in the midst of uncertainty coupled with price volatility that makes us wary.
Our natural response is to cling to smart people, the people we believe know best about Bitcoin, Elon Musk is one of the most influential smart people. The second thing is that Bitcoin requires credibility, if paper money clearly has high credibility, all of us without thinking will accept it, store it and use it as a medium of exchange, because apart from having physical assets as guarantor, paper money is issued by the government and accepted in all countries. Bitcoin doesn't have that credibility yet, so when Elon Musk accepts Bitcoin as a means of payment to buy something, instantly the credibility of Bitcoin goes up and other influencers act as guarantees for the credibility of Bitcoin.
After listening to this explanation we come to know that Elon Musk does not control the price of Bitcoin, at least not directly, he controls the narrative that influences investor behavior, Investors move the masses, the market determines the price of Bitcoin. The last question, is Bitcoin experiencing babel at this time ..? Before we answer that question, let's first examine an important lesson from the roller coaster story.
This cryptocurrency shows how much influence a narrative can have, that's the most important lesson, it's time you harness the power of narrative to improve your business performance. There are three ways to do this, the first is to build a compelling narrative for your product, a narrative that aligns with the values of your customers, all major brands do this. To build a narrative, don't look at your product, but look at what you stand for, then think about how the story of that struggle can attract the hearts of many people and move them to spread the narrative.
Second, take advantage of people who have influence over the market segment you are working on, Elon Musk is the number one influence for Bitcoin investors. The three ride a popular narrative, if you can't build your own narrative, it's better to work together.
How can your business ride that narrative so that its turnover can be boosted, back to the question of whether Bitcoin is a babble some economists like Robert Shiller answered him, as well as veteran investor Warren Buffet who ut Bitcoin as a delusion, indeed the characteristics of a Babylon can be seen in the dynamics of the development of Bitcoin and other cryptocurrencies today.
However industry figures still believe in a bright future for crypto money, they are betting their wealth on that belief, it may be premature if we draw conclusions now as John Maynard said the market can stay irrational longer than you can stay shogun, the market can continue to be irrational longer than your ability to maintain financial health at this time we are still in the early days of technological development, crypto money the use of the technology has not been fully optimized in the end most of the crypto money will be destroyed, but maybe some of them will be able to prove himself to be the blood that drives the world economy like Google which now colors our daily lives.
What do you think, What is your view on crypto money..?
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