Ivan Tan

Social Media's Iron Grip over the Economy

Social Media's Iron Grip over the Economy

What is the Problem?

The sharing economy is, in a nutshell, a socio-economic system based around the sharing of resources. This can be done through verbal confrontation or via technological based social medias such as the popular social networking service, Instagram.

By 2020, Instagram officially had 503 million downloads across all mobile platforms

Instagram, first launched in October 2010, now has 1 billion monthly users as of July 2020. With regards to its significant increase in users, the sharing of information has become even more accessible, and as a result more people are being swayed by the power of social media. Some examples include those naïve adolescents who fall victim to online sexual predators, or the misinformed users who fall for elaborate internet scams.

Those investing in the stock markets are no exception. Consequently, you will find that almost any market would most likely be linked to the sharing economy.

Market Control

The term "market manipulation" is used to describe a type of market abuse whereby there is a deliberate attempt to interfere with the free and legal operation of the market. In 2014, a company named Montgomery Street Research had its owner persecuted for participating in "wash trading", another form of market manipulation.

Wash Trading — The near-simultaneous purchasing and sale of a security to make it seem as though it were being constantly actively traded. This results in misinformation to the market, as it tells investors false data about the genuine supply and data of a stock.

A more recent and relevant issue that has emerged from social media would be South African business magnate Elon Musk's immediate effect over the huge fluctuations over Bitcoin's value. Over the past 5 months, it has been speculated that Musk has now become "Bitcoin's biggest influencer".

Bitcoin falls 50% after a sell off from the year's high

However, a closer analysis at the situation suggests that Musk's actions may not be solely responsible for the volatility of the cryptocurrency. When we observe the price cycle, we see that Bitcoin goes through the same natural cycle that any other investment goes through to be sustainable.

If we were to take a look at Bitcoin's past, there were clear dips in Bitcoin's prices even before Tesla announced their discontinuation of accepting Bitcoin as payment. Therefore, we cannot make the assumption that the cause of the fall in Bitcoin's price was of the multi-billionaire's doing alone.

What can you do?

Tom Hayes, found guilty of market manipulation by altering interest rates and sentenced to 14 years in prison

In short, it is impossible to make any legitimate change. The practise of market manipulation is incredibly hurtful to any of the stakeholders involved and will inevitably lead to the persecution of the party committing the felony.

The potential outcomes caused by market manipulation could take the form of many negative externalities (detrimental impacts to the social welfare of society) such as misleading investments that may have created debt for many individuals and must therefore be dealt with accordingly.