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, in fact. His tweets transfer markets. When he modified his Twitter bio in late January to #bitcoin, the worth of Bitcoin rose almost 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, individuals hear—and act.
What affect 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 latest 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 change Binance for 10 hours earlier than every tweet by means 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—possible resulting from some profit-taking— however then climbed again as much as $38,000 over the subsequent hours.
Buying and selling for Bitcoin within the hours main as much as Musk’s bio change was averaging under 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 affect on that cryptocurrency that the altering of his Twitter bio did—however the affect was nonetheless substantial.
Roughly 4 hours after the tweet, the worth of Dogecoin had almost quadrupled earlier than dropping virtually 50% of the brand new excessive within the subsequent two hours. Much like the day before today’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 largest impacts of his Twitter exercise. In line 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 median of 9 trades per minute. Throughout 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 affect 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 possible solely reactions to earlier market occasions and relate to little or no important value reactions. The opposite two occasions, nevertheless, don’t appear to be reactions however impartial actions which end in enormous will increase in buying and selling volumes and huge and important 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 affect of a Musk tweet gained’t be as massive because it could be if buying and selling exercise was much less risky.
- Timing. Ante’s evaluation suggests that there’s a window of time through which a Musk tweet has affect. It’s potential 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 doubtlessly result in a rise of $111 billion in Bitcoin’s market capitalization, a special tweet may additionally wipe out an analogous worth.”
For a duplicate of Ante’s research, click on here.