Research shows how Elon moves cryptocurrency prices

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The impact of movie star tweets on the cryptocurrency market has grow to be a subject of research for researchers after per week by which Elon Musk triggered sizable value surges for each Bitcoin (BTC) and Dogecoin (DOGE).

Blockchain Analysis Lab printed a paper on Jan. 3 titled, How Elon Musk’s Twitter exercise strikes cryptocurrency markets. The paper appears at six events when Elon Musk tweeted about cryptocurrency and makes an attempt to measure the resultant affect on the buying and selling quantity and spot value of the cash in query.

“We examine the affect of Elon Musk’s Twitter messages on cryptocurrency markets. By making use of occasion research methodology, the affect of six Twitter occasions from 2020 and 2021 on return and buying and selling quantity of the talked about cryptocurrency is analyzed,” the paper states.

Of the six tweets, 4 have been associated to Dogecoin and two have been associated to Bitcoin. The paper concludes that every one six occasions had an affect on the buying and selling exercise of each cryptocurrencies, particularly their commerce quantity:

“Throughout all occasions, we establish vital will increase in buying and selling quantity which are attributable to the occasions.”

The largest affect the paper notes on Dogecoin got here in December, quickly after Musk despatched out the tweet: “One phrase: Doge”.

Previous to the tweet, Dogecoin was being traded round 9 occasions per minute, with a mean buying and selling quantity of $1,942. Within the half-hour instantly following the tweet, commerce quantity jumped to $299,330 per minute and the variety of trades climbed to 775, the paper states.

Not each tweet despatched out by Musk affected the worth of Doge or Bitcoin, however two did lead to vital “cumulative irregular returns.” 

“4 of the Twitter actions are probably solely reactions to earlier market occasions and relate to little or no vital value reactions. The opposite two occasions, nevertheless, don’t appear to be reactions however impartial actions which lead to big will increase in buying and selling volumes and huge and vital constructive irregular returns,” the paper states.

The largest affect Musk had on Bitcoin got here on Jan. 29, when the SpaceX and Tesla CEO added the phrase “Bitcoin” to his Twitter bio. As reported on the time, the worth of Bitcoin surged inside minutes of the brand new addition to Musk’s Twitter profile, and climbed almost 20% within the hours following:

“Musk’s Twitter biochange to #bitcoin resulted in vital CAR of 6.31% over half-hour, which elevated to 13.19% over one hour and peaked at 18.99% over a interval of seven hours. [His tweet] One phrase: Doge resulted in vital CAR of 8.17% over a window of 5 minutes, peaking at 17.31% over the interval of 1 hour.”

To date, Musk’s dalliance with cryptocurrency has been nothing however constructive, and, with the frequent use of memes, even humorous. Nevertheless, because the paper states, analogous analysis in different markets has already proven that the capability for influencers to negatively affect the worth of an asset through social media posts can also be very actual:

“Whereas Musk’s habits and communication could be deemed constructive or humorous in nature (and due to this fact arguably uncritical), comparable analysis has already revealed that detrimental tweets can even have a detrimental affect on monetary returns.”

The researchers acknowledge that the difficulty of influencing markets shouldn’t be native to the cryptocurrency area. The identical issues exist within the inventory market and did so lengthy earlier than the GameStop saga triggered by collective merchants on r/Wallstreetbets.

Addressing the difficulty of public influencers is an ominous process and one which might undoubtedly broach the query of freedom of speech. But, because the paper concludes, the distinction between the ‘proper’ tweet and the ‘fallacious’ tweet could possibly be tons of of billions of {dollars}.

“Our outcomes result in the query below which situations individuals within the public eye ought to touch upon particular cryptocurrencies. If a single tweet can doubtlessly result in a rise of $111 billion in Bitcoin’s market capitalization, a unique tweet may additionally wipe out an analogous worth,” the paper ends.