OBSERVATIONS FROM THE FINTECH SNARK TANK
With greater than 47 million followers on Twitter, Elon Musk’s tweets get a good quantity of consideration.
That’s an understatement, after all. His tweets transfer markets. When he modified his Twitter bio in late January to #bitcoin, the worth of Bitcoin rose practically 20% in a matter of hours.
Musk has additionally tweeted about Dogecoin, however claimed just lately in a Clubhouse chat that his tweets concerning the cryptocurrency are “jokes.” Jokes or not, when Musk tweets, folks hear—and act.
What impression does Musk even have on the worth of Bitcoin and Dogecoin?
Measuring the Musk Impact on Cryptocurrency
Lennart Ante of the Blockchain Analysis Lab in Germany got down to measure the Musk effect. He recognized six current Musk tweets (or “occasions” like altering his Twitter bio) that referred to cryptocurrencies—two of mentioning Bitcoin and 4 citing Dogecoin.
Ante then mapped the corresponding minute-by-minute shut costs, buying and selling quantity, and variety of trades from the cryptocurrency trade Binance for 10 hours earlier than every tweet by way of 6 hours after the tweet (or occasion) for both Bitcoin or Dogecoin.
Occasion #1: Modified Twitter Bio to #bitcoin
Inside roughly one hour of Elon Musk altering his Twitter bio to #bitcoin on January 29, 2021, the worth of Bitcoin skyrocketed from round $32,000 to just about $38,000. It dropped to about $36,000 within the subsequent hour—seemingly on account of some profit-taking— however then climbed again as much as $38,000 over the following hours.
Buying and selling for Bitcoin within the hours main as much as Musk’s bio change was averaging beneath 5,000 trades per hour. Within the 60 minutes following the bio change, buying and selling jumped to greater than 20,000 trades earlier than coming again down nearer to its regular buying and selling vary.
Occasion #2: Posted an image about Dogecoin
Musk’s posting of an image about Dogecoin on January 28 didn’t have the rapid impression on that cryptocurrency that the altering of his Twitter bio did—however the impression was nonetheless substantial.
Roughly 4 hours after the tweet, the worth of Dogecoin had practically quadrupled earlier than dropping virtually 50% of the brand new excessive within the subsequent two hours. Much like the day gone by’s Twitter occasion, Musk’s Dogecoin tweet helped produce a short-term burst of buying and selling about 5 hours after the tweet.
Occasion #4: One phrase: Dogecoin
Musk’s December 20, 2020 tweet—and altering of his Twitter bio—had one of many greatest impacts of his Twitter exercise. In accordance with Ante:
“The common buying and selling quantity of DOGE/USDT within the half-hour earlier than the occasion was about $1,942 per minute with a mean of 9 trades per minute. In the course of the half-hour after the tweet, the common buying and selling quantity per minute was about $299,330 with 775 trades per minute.”
Occasion #5: Bitcoin is my secure phrase
Not all of Musk’s Bitcoin and crypto tweets have a constructive impression on costs. His December 20, 2020 tweets “Bitcoin is my secure phrase” and “Bitcoin is sort of as bs as fiat cash” had been adopted by a roughly 1.7% decline within the value of Bitcoin, with no measurable change in buying and selling quantity.
Ought to Buyers Purchase and Promote Bitcoin on Musk’s Tweets?
In his study, Ante concludes:
“4 of [Musk’s] Twitter actions are seemingly solely reactions to earlier market occasions and relate to little or no vital value reactions. The opposite two occasions, nonetheless, don’t appear to be reactions however impartial actions which end in large will increase in buying and selling volumes and huge and vital constructive irregular returns.”
Earlier than buying and selling, buyers trying to capitalize on Musk’s Twitter musings ought to consider:
- Pre-tweet buying and selling exercise. Was there volatility in buying and selling within the hours main as much as a Musk tweet or occasion? In that case, Ante’s evaluation means that the impression of a Musk tweet received’t be as massive because it could be if buying and selling exercise was much less unstable.
- Timing. Ante’s evaluation suggests that there’s a window of time by which a Musk tweet has impression. It’s doable to be too early or too late to get into the buying and selling frenzy of an Elon Musk tweet.
In any case, it’s a two-way avenue. As Ante places it:
“If a single tweet can probably result in a rise of $111 billion in Bitcoin’s market capitalization, a distinct tweet may additionally wipe out an analogous worth.”
For a replica of Ante’s examine, click on here.