Elon’s influence on the price of Bitcoin and Doge9. Februar 2021
„The Musk effect“ – study examines Elon’s influence on the price of Bitcoin and Doge
The Tesla boss can actually have a noticeable impact on the crypto market, a new study shows.
After Tesla CEO Elon Musk caused massive price movements of the cryptocurrencies Bitcoin (BTC) and Dogecoin (DOGE) with his tweets, scientists are now looking into the question of what influence his statements really have.
The crypto market research institute „Blockchain Research Lab“ published a corresponding study on 3 February that investigates this question. The research report, called „How Elon Musk’s Twitter activity moves cryptocurrency markets“, literally examines how the Tesla CEO has moved the prices of Immediate Bitcoin the two cryptocurrencies under consideration in six cases through his communication on the social network Twitter.
„We investigate the influence of Elon Musk’s Twitter activities by analysing the event study methodology on six of his communications from 2020 and 2021 in terms of return and trading volume of the mentioned cryptocurrencies,“ as it accordingly states.
Of the communications examined, four relate to Dogecoin and two to Bitcoin. The study concludes that all events considered are associated with significantly increased trading volumes for both cryptocurrencies:
„For all events, we find significant increases in trading volume that clearly coincide with Twitter activity.“
By far the biggest spike occurred in December after Musk tweeted about Dogecoin: „I’ll just say one word: Doge.“
In the run-up to that tweet, the cryptocurrency was trading just nine times per minute, with an average trading volume of $1,942. Then, in the subsequent 30 minutes, trading volume shot up to US$299,330 per minute and the number of trades climbed to 775 per minute.
Although the six events all involve price movements, not all of them can be directly attributed to Musk’s activities, as the researchers explain
However, two events provided „abnormal returns“, suggesting that the Tesla boss had a clear influence in these two cases:
„Four of Musk’s tweets are arguably just reactions to prior market developments, so there is no clear influence from these on the share price. The other two events do not appear to be reactions by Musk, but independent statements that have caused a massive spike in trading volumes and provided a very high positive abnormal return.“
According to the report, Musk made the biggest impact on Bitcoin on 29 January, when the Tesla CEO wrote the hashtag „Bitcoin“ in his Twitter status. As reported a few days ago, the crypto market leader’s share price then jumped upwards in a matter of minutes:
„By writing #bitcoin in his Twitter status, Musk triggered a cumulative abnormal return (CAR) of 6.31% within 30 minutes, which climbed to 13.19% over the course of an hour. Over a 7-hour period, the final CAR was 18.99%. His tweet ‚One word: Doge‘ in turn gave Dogecoin a CAR of 8.17% within 5 minutes and a peak of 17.31% over an hour.“
Although Musk’s interaction with the crypto market has so far been exclusively positive, and usually funny due to the inclusion of memes, the researchers warn that other financial markets have shown in the past that influential people can also change the value of financial products for the worse via social media:
„While Musk’s communication can be seen as positive and funny, which probably makes it less critical, other studies have shown that negative statements can also influence a market negatively.“
So outside influence on the market is not a phenomenon unique to the crypto industry. Long before small investors recently conspired on the Reddit sub-forum r/Wallstreetbets to jointly buy the shares of the video game retailer GameStop, there were repeated similar developments on the stock market.