Crypto Influencers Exposed: Following Their Advice Could Cost You Big — Research

Retail
investors
flocking
to
the
digital
currency
market
are
finding
themselves
bombarded
with
advice
from
social
media
crypto
influencers.
These
self-proclaimed
gurus
promise
insights
and
recommendations,
but
a
new
study
suggests
their
pronouncements
may
be
more
flash
than
substance.

Crypto
Influencers:
The
Impact
Of
Tweets

The
research,
conducted
by
a
team
at
leading
universities,
analyzed
the
impact
of
tweets
from
over
180
crypto
influencers
on
follower
behavior
and
token
prices.

The
results
paint
a
concerning
picture.
While
tweets
were
found
to
trigger
short-term
price
increases,
averaging
nearly
2%
within
the
first
two
days,
these
gains
quickly
evaporated.
In
fact,
the
study
found
a
cumulative
return
drop
of
nearly
7%
within
a
month
of
influencer
endorsements.

The
researchers
observed
a
distinct
pattern.
According
to
Dr.
Kenneth
Merkley,
co-author
of
the
study,

influencer
tweets
could
create
a
temporary
price
surge,
but
this
was
often
followed
by
a
significant
decline,
suggesting
the
buying
frenzy
wasn’t
based
on
long-term
fundamentals.

The
findings
resonate
with
real-world
examples.
A
recent
report,
for
example,
shows
the
ill-fated
CryptoZoo
project,
spearheaded
by
YouTuber
Logan
Paul,
which
attracted
millions
in
investments
before
facing
accusations
of
being
a
“rug
pull”
–
a
scheme
where
developers
abandon
a
project
after
taking
investor
money.

Crypto
Influencer
Recommendations
Often
Lead
To
Losses:
Study

Recommendations
from
crypto
influencers
often
result
in
losses,
according
to
scientists
from
three
universities.
Chinese
journalist
Colin
Wu
reported
that,
on
average,
positions
opened
based
on
signals
from
crypto
influencers
on
X
(formerly
Twitter)
showed
a
decline
of
2.20%
after
10
days
and
6.50%
after
30
days.

This
data
comes
from
researchers
at
Indiana
University,
Harvard
Business
School,
and
Texas
A&M
University,
who
analyzed
36,000
tweets
from
prominent
crypto
influencers.
The
study
covered
recommendations
for
1,600
different
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

The
rise
of
influencer
marketing
in
the
crypto
space
hasn’t
gone
unnoticed
by
regulators.
The
report
highlights
the
European
Commission’s
recent
complaint
regarding
potentially
misleading
crypto
promotions
on
social
media.

Investors
Beware

Additionally,
the
new
European
Markets
Crypto-Assets
(MiCA)
regulations
could
hold
influencers
accountable
for
market
manipulation
through
their
endorsements.

In
the
US,
the
Securities
and
Exchange
Commission
(SEC)
has
already
cracked
down
on
celebrities
promoting
unregistered
cryptocurrencies.
The
research
mentions
high-profile
cases
like
Kim
Kardashian
and
Floyd
Mayweather
Jr.
facing
legal
action
for
failing
to
disclose
payments
for
promoting
the
EthereumMax
token,
which
subsequently
crashed
in
value.

The
study
underscores
the
crucial
role
of
responsible
investing
in
the
volatile
crypto
market.
Social
media
influencers
can
be
entertaining,
but
they
shouldn’t
be
the
primary
source
of
investment
advice.

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image
from
Getty
Images,
chart
from
TradingView