Research shows how Elon moves cryptocurrency prices
The impact of celebrity tweets on the crypto currency market has become an issue for researchers after a week in which Elon Musk significantly drove up the prices of bitcoin (BTC) and dogecoin (DOGE).
Blockchain Research Lab published an article on January 3 titled How Elon Musk’s Twitter activity is affecting the crypto-currency markets. The article examines six instances where Elon Musk tweeted about cryptocurrencies and attempted to measure the resulting impact on the trading volume and spot price of the coins in question.
We examine the impact of Elon Musk’s Twitter posts on the crypto-currency markets. Using an event-driven research methodology, the impact of six Twitter events from 2020 and 2021 on the return and trading volume of the said cryptocurrency is analyzed, the paper said.
Of the six tweets, four were related to Dogecoin and two to Bitcoin. The article concludes that the six events had an impact on the trading activity of both cryptocurrencies, particularly their trading volume:
For all events, we find a significant increase in the volume of transactions related to these events.
Paper notes had their biggest impact on Dogecoin in December, shortly after Musk sent out a tweet: One word: The rain.
Before Twitter, Dogecoin was trading about nine times per minute, with an average trading volume of $1,942. In the 30 minutes immediately following the tweet, trading volume peaked to $299,330 per minute and the number of trades reached 775, the newspaper said.
Not all of Musk’s tweets affected the price of DoJ or bitcoin, but two of them resulted in significant cumulative abnormal returns.
The four activities on Twitter are likely just a reaction to previous market events and include little or no reaction to price. However, the other two events appear to be independent actions rather than reactions that led to a significant increase in trading volume and large and significant positive abnormal returns, the article said.
Musk had his biggest impact on bitcoin on the 29th. of January, when the CEO of SpaceX and Tesla added the word Bitcoin to his Twitter bio. As reported at the time, the value of bitcoin skyrocketed within minutes of the new post on Musk’s Twitter profile and rose nearly 20 percent in the hours that followed:
Musk’s sharing of his Twitter bio about #bitcoin resulted in a significant CAR of 6.31% in 30 minutes, which rose to 13.19% in an hour and peaked at 18.99% in 7 hours. One word: Doge’s result showed a CAR rate of 8.17% within five minutes of the window and a CAR rate of 17.31% within one hour.
So far, Musk’s talent for cryptocurrencies has always been positive, and even funny due to his frequent use of memes. However, according to the article, similar studies in other markets have already shown that the ability of influencers to negatively affect the value of an asset through social media posts is also very real:
While Musk’s behavior and communications may be considered positive or amusing (and therefore perhaps non-critical), similar studies have already shown that negative tweets can also have a negative impact on the bottom line.
Researchers acknowledge that the market impact problem is not unique to cryptocurrencies. The same problems exist in the stock market, and long before the GameStop saga was sparked by the corporate traders of r/Wallstreetbets.
Influencing the public is a disturbing task that will undoubtedly affect the issue of freedom of expression. However, the difference between a good tweet and a bad tweet can be worth hundreds of billions of dollars, the study concludes.
Our results lead to the question under what conditions public figures should comment on particular cryptocurrencies. If one tweet can increase bitcoin’s market capitalization by $111 billion, another tweet can also wipe out a similar value, the article concluded.