How Elon Musk's Twitter activity moves cryptocurrency markets

Abstract

Elon Musk, one of the richest individuals in the world, is considered a technological visionary and has a social network of over 110 million followers on social media platform Twitter. He regularly uses his social media presence to communicate on various topics, one of which is cryptocurrency, such as Bitcoin or Dogecoin. Using an event study approach, we analyze to what extent Musk's Twitter activity affects short-term cryptocurrency returns and volume. In other words, we investigate whether cryptocurrency markets exhibit a “Musk Effect”. Based on a sample of 47 cryptocurrency-related Twitter events, we identify significant positive abnormal returns and trading volume following such events. However, we discover that on average, price effects are only significant for Dogecoin-related Tweets but not for Bitcoin. This is because regarding the latter, the significant price effects of positive and negative news cancel each other out. Considered in isolation, non-negative tweets from Musk lead to significantly positive abnormal Bitcoin returns. Individual tweets do raise the price of Bitcoin by 16.9 % or reduce it by almost 11.8 %. Our study shows the significant impact that the social media activity of influential individuals can have on cryptocurrencies. This suggests a conflict between morals, risks of market manipulation and investor protection.