Opinion Analysis by Georges Haydar, Contributor

May 30th, 2021

Risk is a very intriguing concept. Defined as the “chance or possibility of danger, loss, injury or other adverse consequences”, it is often viewed as a crippling source of fear that will inevitably lead to harm. Naturally, given our inherent inclination towards predictability and safety, we as humans tend to dislike situations that are risky because of its subconscious link to pain and loss. This bias significantly impacts our lives, ranging from some of our smallest decisions like sticking to a certain brand of coffee or uprooting your whole life and immigrating to a more “stable” country. While most people look at risk as the cyanide of tomorrow’s certainty, some see it as the drug that prolongs yesterday’s stability. Think of stock traders for instance. These men and women make a living out of predicting the unpredictable not because they’re omnipotent oracles, but because they long for that adrenaline rush, that sense of excitement that veils the ups and downs of the stock market. They crave these dynamic shifts, these sharp transitions, not because of their love of risk, but because of their intolerance of the warm comfort of predictability. The unbearable nature of stability forces them to feed this insatiable pit that lives in them, pushing them to be in constant search of inconsistency and stabilize in instability. Paradoxically, they live in a stable world of their own. Butwhat if risk wasn’t so dichotomous in my eyes? What if I long for some of it, taste this sweet excitement in an increasingly bland world? Where to draw the line?

T.S. Eliot once said: “Only those who risk going too far can possibly know how far one can go.” While this sentence may have been written decades ago, it is no less valid today. In light of the COVID-19 pandemic that rocked the stability and predictability of our world, the system arounds us seems increasingly more tolerant of risk. Interestingly, this unique predicament has reminded us of how fleeting and effervescent life can be, which draws a sharp contrast with the excruciatingly dull and boring lockdown we’ve grown accustomed to. All of this has pushed us to be more daring and bolder in our daily activities, to see “how far one can go.” And what better way to be more daring than trying something new?

For some it was dying their hair or taking that long-planned trip. But for millions, it was the stock market. As the Federal Reserve unleashed billions in stimulus cheques, hundreds of thousands of people decided to try their luck with cryptocurrencies. Seeing themselves at the dawn of a new monetary era, their dreams of a 21st century gold rush sent these digital currencies spiraling up to stratospheric prices. This addiction to a volatility that could make or break a fortune made the headlines all around the world.

Crypto’s market cap reached $2 trillion, with Bitcoin accounting for $1.1 trillion alone. But when does risk start becoming risky? Where does T.S. Eliot morph into Icarus? And what if this dangerous volatility wasn’t the fruit of uncertainty but fueled by drivers?

Enters Elon Musk. Besides being the multi-billionaire owner and innovator behind life-changing companies such as SpaceX and Tesla, he has been playing another very important role in the last few months, a role I refer to as “Lord of the Nerds”. Innovation is not always liked but in the case of Elon Musk, it is revered. Over the years, this man has been the epicenter of a growing cult of avid defenders. These people see him as a real-life Tony Stark who is humanity’s last hope at sustainability. Be it flamethrowers, Tequila bottles, or the colonization of Mars, no project is too daunting for this man. And his followers’ loyalty, which has been tested in the crypto market, is rock solid.

Back in February 2021, Mr. Musk announced that Tesla had invested $1.5 billion in Bitcoin and that it may accept the cryptocurrency as a form of payment soon. Despite heavy environmental concerns (which I discussed in part 3 of my co-authored Bitcoin series) and a crusade from the established financial system, this sole announcement was enough to send Bitcoin up 16% in a single day. Another source of volatility is Mr. Musk’s twitter account. With nearly 56 M followers as of May 2021, any mention of a cryptocurrency is enough to send its price up at the speed of a Starship rocket. For instance, on January 29, he changed his Twitter bio to include “#bitcoin”, leading to a 14% price surge. All of this culminated in Bitcoin reaching an all-time high price of around $63,000 which is a nearly 700% increase YoY. While Bitcoin does present some inherent characteristics that may justify such an interest in its use leading to a surge in its price, it is an undeniable fact Mr. Musk’s influence played a pivotal role in this increase. But the epitome of this surge in popularity is undoubtedly Dogecoin.

Initially launched as a satirical joke in response to the wild speculation in cryptocurrencies, it features the Shiba Inu dog from the Internet “Doge” meme. But this hasn’t stopped it from becoming the star of 2021. Back on February 4, Elon Musk’s single-word tweet “Doge” sent the currency up 60% that day. This started an unbelievable frenzy, with people turning on “Post Notifications” on Elon Musk’s tweets and devising algorithms to buy whatever cryptocurrency he tweets about. All of this sent Doge up almost 9,000%! The expression “To The Moon” eventually became a motto for all Dogecoin holders who were beyond mesmerized by the very phenomenon that was unveiling in front of their eyes. While Bitcoin may have had some underlying foundation that justified its price, Dogecoin was nothing but the fruit of speculation and uncontrolled risk. And it all started to come down…

In May 2021, Musk announced that Tesla would stop accepting Bitcoin as a payment method over environmental concerns, which has sent the cryptocurrency’s price plummeting down nearly 50% in the span of a month and a half. While the stock market is no stranger to crashes, case in point being the infamous 2008 mortgage crisis, never once in the history of our financial system was a stock so correlated to the actions of one man. And this was the steppingstone for the criticism of Elon Musk. Some accused him of running a “pump and dump scheme” (artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price) while others accused him of being a reckless man with complete disregard to the evaporated savings of thousands of people.

Another interesting episode came in January 2021 with the GameStop price. Originally trading at a little less than $20 a share, the stock shot spectacularly up to

$350 before stabilizing back at around $50. While I will not go into the details of this event (which was brilliantly explained here), it is crucial to note that this whole frenzy started because of r/wallstreetbets, a subreddit on the Reddit social media platform. To think that a powerful man or a corporation cannot manipulate a stock is a foolish idea, but to even fathom the thought that a crusade against hedge funds led by users such as DeepFuckingValue would result in a rocambolesque revenge at a system that has severely hurt the middle class in 2008, is out of the realms of possibilities. But for it to become reality, that is a completely different thing.

While these two incidents may seem unrelated, they unravel a worrying question: where does risk stop and where does the inherent noise of the stock market transform into an untamable beast? Answering it is a must if we want to regain a semblance of predictability. Otherwise, we’re condemning ourselves to walk on an uncharted path with an increasingly familiar feeling of déjà vu: Ready Player One.

Sources:

https://www.reuters.com/article/us-crypto-currency-marketcap-idUSKBN2BS1I7https://www.coindesk.com/price/bitcoin

https://www.wsj.com/articles/elon-musk-has-become-bitcoins-biggest-influencer-like-it-or-not-11 621762202

https://www.investopedia.com/terms/p/pumpanddump.asp