Advice from social media crypto gurus is overwhelming retail investors drawn to the digital currency industry. These self-described gurus provide advice and insights, but a fresh study raises questions about the validity of their claims—perhaps more flare than substance.
Crypto Influencers: The Impact Of Tweets
Under the direction of top universities, the team studied how tweets from more than 180 crypto influencers affected follower behavior and token values.
The outcomes create a worrying picture. Although tweets were found to cause temporary price increases—average percentage within the first two days—these gains soon vanished. Actually, the study revealed a total return decline of around 7% within a month of influencer sponsorships.
The observers noted a clear trend. Influencer tweets may cause a brief price spike, according to co-author of the study Dr. Kenneth Merkley, but this was usually followed by a notable drop implying the buying frenzy wasn’t based on long-term fundamentals.
The results speak to actual case studies. For instance, a recent article details the unfortunate CryptoZoo project, led by YouTuber Logan Paul, which drew millions in payments prior to claims of being a “rug pull,” a technique whereby creators abandon a project after accepting investor money.
Crypto Influencer Recommendations Often Lead To Losses: Study
Scientists from three different colleges claim that recommendations from crypto influencers usually lead to losses. Chinese writer Colin Wu claimed that after 10 days and 6.50% after 30 days, positions established depending on signals from crypto influencers on X (previously Twitter) showed a 2.20% drop on average.
Researchers at Texas A&M University, Harvard Business School, and Indiana University examined 36,000 tweets from well-known crypto influencers to get this data. The study included advice for 1,600 various assets.
Top 25 Crypto-Influencers by Number of Mentions pic.twitter.com/6c9lEucdZj
— Wu Blockchain (@WuBlockchain) May 16, 2024
Celebrity Hype And The SEC Steps In
Authorities have not missed the emergence of influencer marketing in the crypto field. The paper emphasizes the recent complaint made by the European Commission on possibly deceptive social media crypto advertisements.
Investors Beware
Furthermore, the new European Markets Crypto-Assets (MiCA) rules can hold celebrities responsible for market manipulation by means of endorsements.
Already, the Securities and Exchange Commission (SEC) has banned celebrities endorsing unregistered cryptocurrencies in the US. The study notes well-known incidents such Kim Kardashian and Floyd Mayweather Jr. who were sued for not revealing payments for EthereumMax token promotion, which subsequently dropped in value.
The research emphasizes the critical part responsible investing plays in the erratic cryptocurrency market. Though they can be interesting, social media influencers shouldn’t be the main source of financial guidance.
Featured image from Getty Images, chart from TradingView
