How Elon Musk moves the price of Bitcoin with his Twitter activity

RESULTS FROM TANK SNARK FINTECH

With over 47 million followers on Twitter, Elon Musk’s tweets are getting a lot of attention.

That’s a understatement, of course. His tweets move markets. When he changed his Twitter bio at the end of January to #bitcoin, the price of Bitcoin rose nearly 20% in a few hours.

Musk has also tweeted about Dogecoin, but recently said in a conversation with Cluba that his tweets about the cryptocurrency are a joke. ”Mocking or not, when Musk tweets, people listen – and work.

What effect does Musk have on the price of Bitcoin and Dogecoin?

Measuring Musk’s impact on cryptocurrency

Lennart Ante of the Blockchain Research Laboratory in Germany aimed to quantify the impact of Musk. He recently identified six Musk tweets (or “events” like changing his Twitter bio) that mentioned cryptocurrencies – two of which mentioned Bitcoin and four mentioned Dogecoin.

Ante then mapped the minute-to-minute close prices, trading volume, and the number of trades from the Binance cryptocurrency exchange for 10 hours before each tweet through 6 hours after the tweet (or event) for either Bitcoin or Dogecoin.

Event # 1: Convert Twitter Bio to #bitcoin

Within about an hour of Elon Musk converting his Twitter bio to #bitcoin on January 29, 2021, the price of Bitcoin went out of about $ 32,000 to nearly $ 38,000. It fell to about $ 36,000 an hour later – probably due to a slight profit – but climbed back up to $ 38,000 over the next few hours.

Trading for Bitcoin in the hours up to Musk bio change averaged below 5,000 trades per hour. In the 60 minutes after the bio switch, trade jumped to more than 20,000 trades before coming back down closer to its normal trading range.

Event # 2: Post a picture about Dogecoin

Musk ‘s posting of a picture about Dogecoin on January 28 did not make the direct impact on that cryptocurrency that changed Twitter – but the impact was still significant.

About four hours after the tweet, the price of Dogecoin was almost quadruple before losing nearly 50% of the new high in the two hours that followed. Similar to the previous day’s Twitter event, Musk Dogecoin’s tweet helped bring out a short-term trading explosion about five hours after the tweet.

Event # 4: One word: Dogecoin

One of the biggest influences on his Twitter activity was Musk’s tweet at December 20, 2020 – and his change of Twitter. According to Ante:

“The average trading volume of DOGE / USDT in the 30 minutes prior to the event was approximately $ 1,942 per minute with an average of 9 trades per minute. In the 30 minutes after the tweet, the average trading volume per minute was around $ 299,330 with 775 trades per minute. ”

Event # 5: Bitcoin is my safe word

Not all of Musk’s Bitcoin and crypto tweets have a positive impact on pricing. His tweets on December 20, 2020 “Bitcoin is my safest word” and “Bitcoin is almost as big as fiat money” followed by a nearly 1.7% decline in the price of Bitcoin, with no measurable change in trade volume.

Should Investors Buy and Sell Bitcoin on Musk Tweets?

In his study, Ante concludes:

“Four of [Musk’s] Twitter actions tend to be just like reactions to previous market events and are associated with very few price reactions. But the other two events do not appear to be reactions but independent actions that lead to a huge increase in trade numbers and a surprisingly large positive outcome. ”

Before trading, investors who want to take advantage of Musk’s sentiments on Twitter should evaluate:

• Pre-tweet trading activity. Did a shift in trading in the hours lead to a tweet or Musk event? If so, Ante’s study suggests that the impact of Musk’s tweet would not be as great as it would be if trading activity were not as volatile.
• Time. Ante research suggests that there is a time window in which Musk’s tweet is influenced. It may be too early or too late to get into the trading frenzy of Elon Musk’s tweet.

In any case, it is a two-way street. How Ante puts it:

“If one tweet could lead to a $ 111 billion increase in Bitcoin market capitalization, a different tweet could erase the same value. ”

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For a copy of Ante review, click here.