The most consequential characters that Tesla and SpaceX CEO Elon Musk played during his Saturday Night Live hosting gig over the weekend were not Wario and a murderous priest. Far more important: his two-minute appearance as a cryptocurrency expert named Lloyd Ostertag during “Weekend Update,” as well as his monologue, in which he played himself. In both cases, he mentioned Dogecoin. By the end of the night, the price of the meme-inspired cryptocurrency had fallen by about 20 percent.
Musk refers to himself as the “Dogefather,” thanks to his repeated promotion of, and evident influence over, Dogecoin, the price of which has soared since the beginning of the year. His enthusiasm for Bitcoin, too, has coincided with the latest run-up in the cryptocurrency’s price, which was nudged higher in January when Tesla bought more than a $1 billion of the cryptocurrency and later said it would accept it as payment for cars. That changed on Wednesday when Musk announced a sudden reversal of that policy, apparently causing Bitcoin’s price to tumble. In both the Dogecoin and Bitcoin cases this week, we saw just how much influence Musk holds over popular cryptocurrencies, and why that might be a problem.
Let’s start with Dogecoin. While other high-profile figures like Shark Tank host Mark Cuban and rapper Lil Yachty have also publicly touted the token, no one wields the level of power that Musk does over the world’s most adorable cryptocurrency. Anything Musk does related to Dogecoin, including tweeting Shiba Inu memes or talking about it on SNL, has a good chance of causing some sort of price fluctuation. It is admittedly hard to definitively determine why Musk’s talk of Dogecoin on SNL led to the price drop. Some have speculated that Musk jokingly denigrating the cryptocurrency as a “hustle” during “Weekend Update” discouraged investors about its value and led them to sell. However, there was also chatter on social media indicating that investors were pursuing a common “buy the rumor, sell the news” strategy in which they bought Dogecoin in anticipation of Musk’s SNL appearance and sold it once he talked about it on the show in order to pocket some profits.
In any case, it seems that Musk is trying to bring the price of Dogecoin back up again. SpaceX announced on Monday that it was accepting Dogecoin as payment from another private space company called Geometric Energy Corporation to launch a 40 kilogram satellite called DOGE-1 to the moon on a Falcon 9 rocket, a stunt that attains a level of meme saturation hitherto thought impossible. (Dogecoin! In space!). Dogecoin prices also rebounded on Tuesday morning after Musk asked his 54.1 million Twitter followers if they would “want Tesla to accept Doge?” (Nearly 80 percent answered “yes” in the Twitter poll.)
It’s unusual for a single person to be able to so effectively influence the price of a certain cryptocurrency, and Musk’s dominion over Dogecoin may reveal some its vulnerabilities. Cryptocurrency is theoretically supposed to be a technology that prevents power from becoming too concentrated in a currency system. Musk’s stature in the Dogecoin space would seem to counter what makes cryptocurrency so appealing in the first place. “Decentralization was the key breakthrough achieved by [Bitcoin inventor] Satoshi Nakamoto,” said Garrick Hileman, head of research at the cryptocurrency exchange Blockchain.com and a visiting fellow at the London School of Economics. “When you have massive concentrations in any dimension —computing power, ownership, social media influence—that is kind of against the ethos of decentralization and the innovation that was sparked by Bitcoin.”
Certainly, as Hileman points out, there are many prominent figures who influence the decisions of smaller investors. Many people hang onto Warren Buffet or Jim Cramer’s every word for buying stocks. What’s different about Musk’s command over Dogecoin—and even Bitcoin itself—is the volatility of the cryptocurrency. A 20 percent swing is pretty striking, particularly since it was tied to an SNL appearance. Dogecoin investors are to some extent at the mercy of one man’s actions. “There’s huge risks around Dogecoin and huge risks that Elon might lose interest in it,” said Hileman. “Is he going to dump his Dogecoin if he loses interest and then let people know he’s moved on to something else, leaving his Twitter followers holding the bag?”
It’s unclear how much, if any, Dogecoin Musk owns. Musk did tweet in February about buying some Dogecoin for his son X Æ A-12 so that he could be “a toddler hodler”—but he might have just written that for the sake of a pun. Given how much time Musk spends promoting Dogecoin, though, it seems likely that he probably also owns some himself. The problem is, though, that the public doesn’t have a real sense of how much he might have. Unlike with stocks in traditional markets, there aren’t strong and clear requirements for informing the public that you have a large stake in a certain cryptocurrency when talking it up or panning it.
Yet Preston Byrne, a partner at the Anderson Kill law firm who focuses on cryptocurrencies, is a bit more sanguine about Musk’s “Dogefather” status. Byrne actually thinks Musk’s Dogecoin following demonstrates the power of decentralized groups who are willing to work in concert. “Musk has power, but he wouldn’t have power if he didn’t have willing followers, so this is a recent phenomenon with internet shitposters yeeting into various assets, whether it be Gamestop or Dogecoin,” he said. “There’s a receptive audience that is perfectly willing to make a mockery of the fact that we can create our own meme money now.” Byrne added that he thinks it’s unlikely that Musk has enough of a stake in Dogecoin to cause a critical conflict of interest given that there can still be some legal risks for participating in manipulative or deceptive practices with cryptocurrency. For instance, antivirus software titan John McAfee was charged in March with securities fraud for allegedly pushing his Twitter followers to invest in Dogecoin and other cryptocurrencies and claiming that he had no stake in them when he actually did.
Then there’s Bitcoin. Tesla’s move to invest $1.5 billion in Bitcoin in January and the announcement in February that it would eventually accept Bitcoin as payment precipitated the cryptocurrency reaching record highs earlier in the year. (This wave of hype also very likely contributed to the recent NFT art craze.) Because Bitcoin has so many more investors and so much more money involved, Musk can’t tinker with the price in the same way he does with Dogecoin, but the concentration of influence is nevertheless a concern. “These influential companies and individuals can certainly impact Bitcoin, even as it’s relatively more decentralized than certainly Dogecoin is.” Case in point: In a surprise move, Musk announced on Wednesday that Tesla is abandoning plans to accept Bitcoin until the resource-intensive technology transitions to using sustainable energy, causing the cryptocurrency’s price to fall by 4.5 percent. It rebounded slightly by Thursday but still has not entirely recovered.
Is all of this a problem that new laws could solve? Stricter transparency regulations could be useful for ensuring that smalltime investors aren’t getting the wool pulled over their eyes by crypto influencers and major companies. (On the blockchain, you can see account addresses but not the identity of the users who own them.) Hileman suggests that such regulations could include a requirement for investors to give some sort of indication about how much of a cryptocurrency they own when promoting it, even if it’s as vague as saying they own at least 1 percent or under 5 percent. There could also be rules around certain powerful investors having to announce in advance if they plan to sell. Hileman thinks, though, that major cryptocurrency investors may want to consider taking these steps themselves. “Greater transparency on ownership stakes, some of this may need to be done on a volunteer basis prior to the regulators stepping in,” he said. “Regulators don’t like to have to step in, but they will if the industry can’t police itself.”
Future Tense is a partnership of Slate, New America, and Arizona State University that examines emerging technologies, public policy, and society.