OBSERVATIONS FROM THE FINTECH SNARK TANK
With greater than 47 million followers on Twitter, Elon Musk’s tweets get a good quantity of consideration.
That’s an understatement, after all. His tweets transfer markets. When he modified his Twitter bio in late January to #bitcoin, the worth of Bitcoin rose almost 20% in a matter of hours.
Musk has additionally tweeted about Dogecoin, however claimed lately in a Clubhouse chat that his tweets concerning the cryptocurrency are “jokes.” Jokes or not, when Musk tweets, individuals hear—and act.
What affect does Musk even have on the worth of Bitcoin and Dogecoin?
Measuring the Musk Impact on Cryptocurrency
Lennart Ante of the Blockchain Analysis Lab in Germany got down to measure the Musk effect. He recognized six latest Musk tweets (or “occasions” like altering his Twitter bio) that referred to cryptocurrencies—two of mentioning Bitcoin and 4 citing Dogecoin.
Ante then mapped the corresponding minute-by-minute shut costs, buying and selling quantity, and variety of trades from the cryptocurrency change Binance for 10 hours earlier than every tweet by means of 6 hours after the tweet (or occasion) for both Bitcoin or Dogecoin.
Occasion #1: Modified Twitter Bio to #bitcoin
Inside roughly one hour of Elon Musk altering his Twitter bio to #bitcoin on January 29, 2021, the worth of Bitcoin skyrocketed from round $32,000 to almost $38,000. It dropped to about $36,000 within the subsequent hour—seemingly because of some profit-taking— however then climbed again as much as $38,000 over the following hours.
Buying and selling for Bitcoin within the hours main as much as Musk’s bio change was averaging beneath 5,000 trades per hour. Within the 60 minutes following the bio change, buying and selling jumped to greater than 20,000 trades earlier than coming again down nearer to its regular buying and selling vary.
Occasion #2: Posted an image about Dogecoin
Musk’s posting of an image about Dogecoin on January 28 didn’t have the rapid affect on that cryptocurrency that the altering of his Twitter bio did—however the affect was nonetheless substantial.
Roughly 4 hours after the tweet, the worth of Dogecoin had almost quadrupled earlier than shedding virtually 50% of the brand new excessive within the subsequent two hours. Just like the day gone by’s Twitter occasion, Musk’s Dogecoin tweet helped produce a short-term burst of buying and selling about 5 hours after the tweet.
Occasion #4: One phrase: Dogecoin
Musk’s December 20, 2020 tweet—and altering of his Twitter bio—had one of many greatest impacts of his Twitter exercise. In accordance with Ante:
“The typical buying and selling quantity of DOGE/USDT within the half-hour earlier than the occasion was about $1,942 per minute with a mean of 9 trades per minute. In the course of the half-hour after the tweet, the typical buying and selling quantity per minute was about $299,330 with 775 trades per minute.”
Occasion #5: Bitcoin is my secure phrase
Not all of Musk’s Bitcoin and crypto tweets have a constructive affect on costs. His December 20, 2020 tweets “Bitcoin is my secure phrase” and “Bitcoin is nearly as bs as fiat cash” have been adopted by a roughly 1.7% decline within the worth of Bitcoin, with no measurable change in buying and selling quantity.
Ought to Buyers Purchase and Promote Bitcoin on Musk’s Tweets?
In his study, Ante concludes:
“4 of [Musk’s] Twitter actions are seemingly solely reactions to earlier market occasions and relate to little or no vital worth 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.”
Earlier than buying and selling, traders seeking to capitalize on Musk’s Twitter musings ought to consider:
- Pre-tweet buying and selling exercise. Was there volatility in buying and selling within the hours main as much as a Musk tweet or occasion? In that case, Ante’s evaluation means that the affect of a Musk tweet received’t be as massive because it is likely to be if buying and selling exercise was much less unstable.
- Timing. Ante’s evaluation suggests that there’s a window of time by which a Musk tweet has affect. It’s potential to be too early or too late to get into the buying and selling frenzy of an Elon Musk tweet.
In any case, it’s a two-way road. As Ante places it:
“If a single tweet can probably result in a rise of $111 billion in Bitcoin’s market capitalization, a unique tweet may additionally wipe out an identical worth.”
For a duplicate of Ante’s research, click on here.