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How Twitter Sentiment Drives Cryptocurrency Market Trends: Analyzing the Power of Influencer Endorsements



Author: Mert Erol

Publication date: 10/10/2024


Cryptocurrency markets stand out as a rapidly developing and volatile investment area. The mobility of these markets is closely related not only to economic indicators or technical analyses, but also to sentiment on social media. Platforms such as Twitter in particular play an important role in the price movements of cryptocurrencies. This article will examine the effects of social media and especially influential Twitter influencers on the market. The sudden price fluctuations experienced after the posts of famous names such as Elon Musk about cryptocurrencies, in particular, reveal the power of this phenomenon. So, can such posts really change the value of cryptocurrencies? Or is this just a social media illusion? In this article, we will analyze how sentiment on Twitter shapes trends in cryptocurrency markets and the role that influential names play in this process.



The Effects of Elon Musk’s Tweets in Cryptocurrency Market



Firstly, we will start analyzing effects of Elon Musk’s tweets in the cryptocurrency market. Elon Musk tweeted that ‘Bitcoin is my safe word’ in 20 December 2020 at 9:21 am. And this tweet did not affect the bitcoin prices so much. In the same day, Elon Musk tweeted again at 10:30 am. And that tweet was ‘One word: Doge’. Before this tweet, Dogecoin’s volatility was $1942 per every minute, but after the tweet its volatility increased up to $299.330 per minute. After, Elon Musk tweeted a photo about Dogecoin in 28 January 2021 and there was a dog picture in the photo. After this tweet, the price of Dogecoin rose over 300 percent in a few hours. In 11 May 2021, Elon Musk tweeted a survey, and it was about should Tesla accept Dogecoin as payment. Nearly 4 million users voted this survey and about 80% users said ‘yes’ so Tesla should accept Dogecoin as payment, so Dogecoin increased to $0.5728 in that day. Two days later, Elon Musk tweeted about Tesla will not accept payments with Bitcoin in 13 May 2021. According to this tweet, Tesla will not use Bitcoin because of its costs and environmental problems, so they decided to make a new deal with a new cryptocurrency. After this tweet, Bitcoin downed from $54.819 to $45.700. In 25 January 2022, Elon Musk tweeted about Dogecoin again, and he was saying that he will eat a happy meal on TV if McDonald's accepts Dogecoin. This affected the price of Dogecoin positively, so Dogecoin increased up 9% according to before a day. So Elon Musk shared a lot of tweets and his tweets affected the cryptocurrency market generally positively and sometimes negatively.


The Effects of Changpeng Zhao’s Tweets in Cryptocurrency Market


Secondly, we will examine the tweets of Changpeng Zhao, the CEO of Binance Exchange, with the incident of the bankruptcy of FTX Exchange. Although Changpeng Zhao, known as CZ for short, tweeted about cryptocurrencies and caused minor changes in the market, most people in the public opinion argue that he was effective in the bankruptcy of FTX Exchange thanks to his tweets. If we examine this story from the beginning, firstly, on November 2, 2022, Coin Desk published a document stating that Alameda Research, managed by Bankman-Fried, had a large amount of FTT, the native token of FTX Exchange. On November 6, 2022, CZ tweeted that Binance, which invested in FTX and Alameda, would withdraw its investments from both companies and remove FTT from its platform. He also warned his followers to withdraw their money from FTX immediately. After this tweet by CZ, users started to withdraw their money from FTX, which caused great panic. FTX’s liquidity was severely reduced, and payment difficulties began to emerge. In response, Bankman-Fried tried to calm the situation by posting messages of confidence on social media and accused CZ of sabotaging their business. However, FTX could not stop this collapse and filed for bankruptcy on November 11, 2022, leaving millions of its customers in a difficult situation. The exchange had over $32 billion in debt and less than $1 billion in assets, and this was a very rapid corporate collapse. After mishandling customer funds and mismanagement of finances, the authorities stepped in and sentenced Bankman-Fried to 25 years in prison and $10 billion in assets to be seized. In the end, CZ’s tweet did not cause this collapse on its own, but it did cause the collapse to happen faster by exposing a poorly managed exchange.


In conclusion, the decentralization and lack of control of cryptocurrencies are very likely to cause panic, rise or fall with a post or tweet by those who have high followers on social media. As we explained above, Elon Musk caused investment to come to him and sudden increases in the price of Dogecoin by posting various tweets with his own investment coin Dogecoin, and also caused bitcoin prices to sometimes rise and sometimes fall thanks to his tweets with bitcoin. Binance CEO Changpeng Zhao, on the other hand, caused changes in the cryptocurrency exchange by sharing various tweets, but it is seen that he accelerated the bankruptcy of the FTX exchange due to his tweets about FTT. As a result, it is necessary to be very careful to invest in this sector, which causes changes with the posts of people with high influence on social media.


 

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