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Did Elon Musk’s tweets affect the markets? Not necessarily

Photo of: Nathan VDH
by Nathan VDH

The influence of celebrity Twitter messages on the value of cryptocurrencies is now being studied. Investors may not like it, but this parameter must be taken into account. Elon Musk thus stands out as a major influencer on Bitcoin or Dogecoin.

Are cryptocurrencies too volatile? Probably still. And to moderate these variations, some investors are betting on a wider adoption by institutional investors. MicroStrategy is promoting their use as a cash reserve for companies.

In the meantime, there are parameters that can significantly affect the price of crypto-assets. Several examples of this include tweets from major influencers such as Elon Musk.

But to what extent do these messages impact the courses? Blockchain Research Lab sought to evaluate this through a study. In particular, the study analyzed six episodes during which Elon Musk intervenes.

Among these, four are about Dogecoin and two about Bitcoin. And each time, the messages of the billionaire and Tesla’s boss had the consequence of increasing the price of these cryptocurrencies.

“In all cases, we identify significant increases in the volume of exchanges that are attributable to the events,” the authors of the study note. And the most significant increase came from the DOGE last December.

Moreover, the messages of the influencer need not be very elaborate or can be interpreted directly as a buy signal for investors. In December, Elon Musk limited himself to a very brief tweet: “One word: Doge”.

Prior to the publication of this terse message, the average volume per minute of the token was just under $1,942. Within 30 minutes of its release, this volume was already close to $300,000, the study notes.

Not all of the billionaire’s messages, however, produce equivalent effects. Twice, however, they resulted in significant “anomalous cumulative returns,” Blockchain Research Lab observes.

“Four of the Twitter activities are likely just reactions to previous market events and involve little or no significant price reactions. The other two events, however, do not appear to be reactions but independent actions that result in huge increases in trading volumes and significant positive abnormal returns. ยป

However, the effects of such messages are double-edged, the study warns. Previous research has shown that negative tweets can negatively affect financial returns.

And the actual effects are difficult to anticipate. By simply adding “Bitcoin” to his Twitter bio, Musk was triggering a real spike in the value of BTC. His interview a few days later did not produce a similar effect. But this time the boss was clearly expressing his interest in cryptocurrencies.

As for his statements about DOGE, Musk himself explains that they were humourous and not promoting its acquisition. “I have to be careful what I say. It can affect the market,” he admits.