Billionaire tech tycoon Elon Musk’s Twitter activity is not only provoking discussion, but it also sets off unusual trading volumes and double-digit returns, according to a recent paper by the Blockchain Research Lab (BRL).
Musk, who owns a Twitter account with 45.5m followers, continues to influence markets through his never-ending stream of impressions on social media, driving dogecoin (DOGE) upwards after calling it the “people’s crypto”, in his spare time between launching rockets into space and maturing the richest person on the planet.
Nevertheless, Lennart Ante, a BRL researcher who’s a proud product from the University of Hamburg, studied six recent crypto-related Twitter events by Tesla’s CEO (two about bitcoin (BTC) and four about DOGE), posted in 2020 and 2021, striving to measure the impact Musk’s social media activity exerts on cryptocurrency trade.
Using a model that refers to Musk’s individual Twitter activity and shows the resulting cumulative abnormal return (CAR) and cumulative abnormal trading volume (ATV) over different time frames, Ante writes,
“we discover significantly abnormal returns of up to 18.99% for Bitcoin and 17.31% for Dogecoin across different time frames.”
While four of the studied Twitter activities are likely only reactions to previous market events and relate to little or no significant price reactions, sad Ante, two “do not seem to be reactions but independent actions which result in huge increases in trading volumes and large and significant positive abnormal returns” – these are adding the bitcoin symbol to the Twitter bio, and tweeting “One word: Doge.”
“On January 29, 2021, Elon Musk, at that time the richest person in the world … unexpectedly changed the bio of his Twitter account to bitcoin. The price of Bitcoin rose from about [USD] 32,000 to over [USD] 38,000 in a matter of hours, increasing its market capitalization by [USD] 111 billion,” the paper states.
Musk’s Twitter bio change resulted in a significant CAR of 6.31% over 30 minutes, and 13.19% over one hour. The return peaked at 18.99% over 7 hours.
In contrast, his tweet “One word: Doge” resulted in a CAR of 8.17% in just five minutes. The return reached its peak of 17.31% over one hour, according to Ante.
Moreover, five of the studied events generated significantly positive ATVs in the short-term, and one event had a significantly negative ATV in the first ten minutes following Musk’s tweet. All six events resulted in positive ATVs after 31 minutes passed since each tweet.
The two mentioned events “illustrate the significant impact Elon Musk’s Twitter activity can have on cryptocurrency markets. While the Twitter bio change might have been meant to be a serious sign of support for Bitcoin, the tweet about Dogecoin was a joke—as Musk later admitted himself,” the paper says and adds:
“Considering that a joke made by the richest person in the world has caused such a significant market reaction illustrates the impact of influential individuals on cryptocurrency markets.”
Additionally, negative tweets could also harm financial returns. Meanwhile, if Musk were to tweet about crypto several times a day, “the market would likely interpret this as noise in the medium term”, said the report.
Ante determined that “a systematic classification of influencers in terms of their short-term impact on cryptocurrencies may represent a promising research approach” – particularly relevant against the background of coordinated manipulation via pump and dump schemes.
Coin pumping via social media sites, as well as pump and dump schemes, have been a major point of discussion in the Cryptoverse recently.
DOGE itself was the focus of such conversations several times, most prominently when it was elevated by TikTokers last year, and when it was referred by Musk several times, and by a member of the r/wallstreetbets subreddit, tied for the GameStop pump this year.
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