Did the Tesla purchase of Bitcoin change market dormancy?
On-chain Bitcoin analyst Willy Woo posted a tweet on March 28 showing a Glassnode chart of average Bitcoin dormancy. Musk Effect #1, the effect of his tweets, is not present.
However, the chart shows that Bitcoin dormancy shortened drastically just before the Tesla purchase. Since then, it’s lengthened again. Roughly speaking, the Tesla purchase reset dormancy to the November level, before Bitcoin started breaking all-time-high price records.
Musk Effect #1
Elon Musk became famous in the cryptocurrency community in early 2020 as the tongue-in-cheek chairman of Dogecoin. However, more people started paying attention to his tweets toward year-end. The Musk Effect became noticeable. In early February 2021, Blockchain Research Labs ran a study showing that some of Musk’s tweets did seem to bring about abnormal changes in BTC and DOGE prices.
Then rumors started that the Securities and Exchange Commission in the U.S. was interested in talking to him about his tweets and their effect on DOGE prices. Celebrity crypto endorsements in general fell off quickly. Musk, while claiming that an SEC probe of his Dogecoin tweets would be ‘awesome’, also changed his tone. By mid-March, Musk’s crypto tweets were not moving the needle on crypto prices.
Musk Effect #2, Part 1
On Feb. 8, Tesla announced the purchase of $1.5 billion in Bitcoin. The market reacted immediately, with a double-digit rise past $40,000, and has not been below it since. Tesla’s stock began tracking the Bitcoin price as well.
When Tesla announced the $1.5 billion purchase, it also promised that buying its products with Bitcoin was in the cards.The technology company which makes motor vehicles made good on that promise on March 24.
The tweet was reposted thousands of times, but the effect on Tesla’s price was negligible.
Musk Effect #2, Part 2
Willy Woo’s tweet raises an aspect of HODLing that is brought up with increasing frequency as the Bitcoin price rises. BeInCrypto conducted an analysis of Bitcoin holding in mid-March. The report concluded that current activity is unlike the top of the cycle in 2011, 2013, and 2017. This could signal that there is room to grow for Bitcoin in the short term. And as long as the dormancy stays above the level of the pre-Tesla purchase period, HODLers will apparently think so, too.
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