Elon Musk’s tweets about Bitcoin are moving markets, is that even illegal?
Musk should be fine by now, as the lawyers say, but he should be extra careful.
In July of 2020, a Twitter user asked Elon Musk for some Bitcoin. It was almost most particularly a gag and Musk responded in kind, pointing toward a more unsung digital asset:
The best example is the Dogecoin, the “meme coin” created by two bored tech workers back in 2013 as a sort of commentary on the trust-as-value proposition underpinning the broader crypto-verse.
However, because of Musk’s endorsement, the price of a single Dogecoin has wildly fluctuated. His tweets about Bitcoin have also made market movements.
Now that Tesla is $1.5 billion deep in Bitcoin, Musk is publicly sharing his perspective on the crypto markets is more complicated. Musk’s penchant for seemingly spontaneous tweets will always have the ability to cause trouble, but the lawyers said that he is still probably within legal bounds.
In the wake of last month’s Reddit-fueled GameStop short squeeze, Musk pushed slogans like “Dogecoin is the people’s crypto,” and “🎶Who let the Doge out🎶.” He tweeted out a poll named “The future currency of Earth,” with two choices: “Dogecoin to the Moooonn” and “All other crypto combined” (the former received 71.3% of the vote). There is also a photoshopped image of Elon Musk as Rafiki, from The Lion King, holding up a Simba-Doge hybrid, which has been liked for a million times.
Musk who has 46 million followers on Twitter, had clarified that his Dogecoin posts are “really just meant to be jokes,” however according to a recent study from the Blockchain Research Lab, they still exert significant influence in the market: one December tweet sent the price up by 8% in five minutes.
And then the same goes for Bitcoin – when Musk added the Bitcoin hashtag to his Twitter bio, the market pumped around 20%. Is this market manipulation?
Since Tesla announced its $1.5 billion investment in Bitcoin early this week, the question of whether Musk could continue to tweet reckless things about the cryptocurrencies is less clear-cut.
Musk had been a Twitter troll for many years, and it has faced scrutiny for careless posts and misinformation in the past: last year, his infamous suggestion that “tesla stock price is very high” sent shares down by $60 in minutes. Last 2018, he wrote that he had planned to take the company private at a shared price of $420, which resulted in a scolding from the SEC.
“CEOs of companies with substantial Bitcoin holdings will need to be very careful before talking their Bitcoin books in a fashion that might move the markets to ensure their statements are not part of anything which might be viewed as a manipulative or deceptive device or contrivance in the context of either the commodity or securities domains,” he stated.
An example of a “deceptive device or contrivance” could be a typical “pump-and-dump” scheme, which involves talking up a particular asset, suckering in new buyers to raise the price, and then exiting your positions before the inevitable crash. In this case, the schemes would be handled by the Commodity Futures Trading Commission (CFTC), instead of the SEC, since Bitcoin isn’t considered a security. Other cryptocurrencies, like Ethereum-based tokens, could be considered securities and regulated by the SEC.
Both the SEC and CFTC and also the US Department of Justice, can investigate and bring forth charges if they suspect fraud – even about crypto assets, Byrne stated.
Eric Goldman, a law professor from Santa Clara University, elaborated that questionable tweets, however, offer a single wiggle room, thanks to what he named “the fast-and-furious nature of online discourse.”
“In general, courts routinely assume that most readers of Internet content—especially in a forum like Twitter—do not take social media posts seriously,” he stated, adding that former President Trump has avoided lawsuits on this basis. “Having said that, market regulators—especially organizations like the Securities and Exchange Commission—are very much alert to the risks of pump-and-dump schemes.”
Goldman said that Musk’s adding the Bitcoin hashtag to his Twitter bio “is probably nowhere close to that line.”
While Musk can be safe from government regulators, for now, his addiction to erratic, meme-based posting remains a potential liability.
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