Retail investors flocking to the digital currency market are getting a lot of advice from social media cryptocurrency influencers. These self-proclaimed experts promise insights and recommendations, but new research suggests their remarks may be more episodic than substantive.
Cryptocurrency Influencers: The Impact of Tweets
A study conducted by a team from a leading university analyzed the impact tweets from over 180 cryptocurrency influencers had on follower behavior and token prices.
The results paint a worrying picture. It turned out that the tweet triggered a short-term price increase, averaging almost 2% in the first two days, but these gains quickly disappeared. In fact, the study found that cumulative returns decreased by almost 7% within one month of receiving an influencer endorsement.
Researchers observed a distinct pattern. According to study co-author Dr. Kenneth Merkley, influencer tweets can cause temporary price spikes, but these often lead to significant declines, suggesting the buying frenzy is not based on long-term fundamentals. .
The results of this study are consistent with real-life cases. For example, a recent report shows the ill-fated CryptoZoo project led by YouTuber Logan Paul. The project attracted millions of dollars in investment and then faced accusations of a “rug pull,” with developers abandoning the project after siphoning off investors’ money.
Crypto Influencer Recommendations Often Lead to Losses: Study
Recommendations from cryptocurrency influencers often result in losses, according to scientists from three universities. Chinese journalist Colin Wu reported that on average, positions opened based on signals from cryptocurrency influencers on
The data comes from researchers at Indiana University, Harvard Business School, and Texas A&M University, who analyzed 36,000 tweets from prominent cryptocurrency influencers. The study covered recommendations for 1,600 different assets.
Top 25 Crypto Influencers by Number of Mentions pic.twitter.com/6c9lEucdZj
— Wu Blockchain (@WuBlockchain) May 16, 2024
Celebrity Hype and SEC Intervention
The rise of influencer marketing in the cryptocurrency space has not gone unnoticed by regulators. The report highlights recent complaints from the European Commission regarding potentially misleading promotions of cryptocurrencies on social media.
Investors beware
Additionally, new European Market Crypto Assets (MiCA) regulations could hold influencers accountable for market manipulation through their approval.
In the United States, the Securities and Exchange Commission (SEC) has already cracked down on celebrities promoting unregistered cryptocurrencies. The study notes that high-profile cases such as Kim Kardashian and Floyd Mayweather Jr. have faced legal action for failing to disclose payment information for promoting EthereumMax tokens, which have since plummeted in value.
This study highlights the important role of responsible investing in volatile cryptocurrency markets. Social media influencers can be fun, but they shouldn’t be your primary source of investment advice.
Featured image by Getty Images, chart by TradingView