How Influencers Change the Market

Financial markets represent complex systems that are extremely dependent on the decisions of traders and performances of companies as well as a range of the outside factors such as politics and a social situation. Assuming that particular personalities are staying behind the changes happening to the market would be a strange thing to do, yet there are sufficient grounds to believe it might be a case.

Insights into the dynamics of the cryptocurrency market are often gained by examining topical social media accounts such as Twitter and Facebook, as well as following communities on Reddit or reading cryptocurrency-related posts on Medium. Each of those social platforms allows continuous communications and the spread of user-generated information. Influencers are usually active on at least one social networking site. By this we mean not only personalities that establish their online presence to share news and opinions, but also groups of cryptocurrency enthusiasts who develop online subcultures around crypto-related topics to attract large audiences. This study examines the question of how opinions and insights spread by influential cryptoindustry personalities through their Twitter accounts impact the exchange rate fluctuations of digital assets.

From industry leaders to trendsetters

The overall purpose of partnering with opinion leaders is to develop shared positive attitudes towards a particular project and make audience participate in a crowdfunding campaign. This raises the question of how to evaluate the behaviour of the public in response to promotional messages. To explore the correlation between promotional messages and currency rates we analysed critical changes to currency rates in relation to the period of time in which opinion leaders posted their promotional content.

We could identify three different types of Twitter accounts that develop in relation to the updates on the cryptocurrency market: Tech and crypto communities that developed around a broad cross-sectoral scope of themes featured in magazines and news portals; trading publics or trading-related accounts that place up-to-date news from around the crypto world in real time; key figures who by practice or through promotion of specific ideas have made a major contribution to how the cryptomarket is understood.

The development of the crypto market reflects a dual movement. One trend is guided by the external events that alter market perception and, thus, perception of what is possible on the world’s financial landscape; the other leads to the recognition and adoption of new assets and products. Both development lines have a clear impact on the trading strategy. Since the central purpose of the investigation is to establish a link between impactful promotional actions and asset rates, we specifically focused on Twitter accounts of key figures and traders from the cryptoindustry. These are two types of messages that we compared to major events that have been covered in press.

First, we built two groups of accounts referred as influencers and traders, each containing 10 accounts that closely match in a number of followers and comprise personal messages up to 60% of quarterly created tweets as compared to retweets. Twitter accounts with a number of followers from 300.000 to 500.000 were taken in the selection of influential personalities and those being followed by 50.000 to 150.000 for the selection of trading accounts. Tweets were manually reviewed in order to identify the influential context. Second, we analyzed a scope of annual narratives and selected a corpus of six narratives that became a focus of media examination in the first half of 2018. Significance of selected narratives was determined by frequency of mentions in press. At the final stage of research we compared a number of tweets related to each news announcement in both groups and calculated the amount of tweets as percentage as it is shown in Chart 1.

It should be noted that the resulting tweets are closely tied to the business interests of the account owners since as founders, CEOs or major investors they certainly track events from the areas with most significant impact on their corporations or a field of interests. Crypto influencers in particular tend to be closely involved with one or more projects, and are therefore more interested in news connected to those specific projects. As an extension of this, they also can be more prescriptive, advocating for their ideas and pet projects. The accounts that we have classed as traders are more descriptive and analytical, and more interested in events that affect the crypto market as a whole rather than any project in particular. Curiously, however, news connected to SEC regulations have drawn substantially more interest from the first group. That can be explained by their greater importance for specific projects, such as Bitcoin or Ethereum.

Chart 2a. BCH: Price changes in November 2018. Based on data for November 2018 provided by Coinmarketcap.com. Prices are given in USD.

We also decided to examine the possible impact of influencers on the price of a specific digital asset using the example of the Bitcoin Cash hardfork: an event that affected the entire crypto market and drew comment from all sides of the cryptocurrency community. While there were other factors involved there as well, major industry figures and companies weighing in was certainly important, especially when it came to persuading miners and other actors to lend their support to one side or another during the “hash war”.

Chart 2b. Influencers and the BCH hard fork. Based on data for November 2018 provided by Coinmarketcap.com. Prices are given in USD.

Table 1. Influential personalities behind the BCH hard fork. Summaries of the most notable November tweets of crypto influencers who were most prominently involved in the conflict: Craig Wright and Calvin Ayre as the leaders of the BCH SV camp, Roger Ver as their opposite number on the BCH ABC side and John McAfee as a vocal late supporter of the latter’s ally, Jihan Wu.

Also worth mentioning, due to their widely accepted impact, are trading analyst Tone Vays’ interview with Wright on November 8th and criticism of BCH ABC on November 18th, and Ethereum creator’s Vitalik Buterin’s critical tweet about Wright on November 14th.

It must be noted that, on the whole, leading voices in the crypto market have been more inclined to support BCH ABC. However, BCH SV supporters have made up for this with sheer volume. The people directly involved with the competing projects could do more to damage each other’s positions than to advance their respective causes, since their tweets generally lacked the surprise factor needed to change people’s minds (though Wright’s threats against ABC in particular may have helped scare away investors). Outsiders to the “hash wars” like John McAfee and Tone Vays have had a greater impact because they were not seen as inherently invested in either project to such an extent. In the weeks following the hard fork, the frequency of tweets on the subject has diminished somewhat, which may have made them more impactful. In particular, the relative decline of ABC and recovery of its rival in the last third of the month may be attributed in part to increased criticism of the former’s apparent flaws and well-timed announcements by supporters of the latter.

What do opinion leaders think about the future of the market?

The 2018 cryptocurrency bear market that saw many tokens lose much of their value may have disappointed or frightened some of its more casual or recent participants, but the cryptoindustry leaders and experts whom we have reached out to in order to get their views on the market remained undaunted. They are in it for the long haul and can take a temporary downward trend more or less in stride. According to Tim Dawson of Countinghouse Fund, “this is exactly the type of environment where direct-hedging and short selling can be useful. This type of crisis is not only likely to be weathered by the fund but to be where you see some of it’s record performance.” Simon Cocking, chief editor at Irish Tech News and Cryptocoin.News, pointed out that while the crypto market has definitely faced adverse conditions, “in Q3 there were also lots of investors who made a return depending on when they sold and when they bought”.

One of the main trends likely to influence the market in 2019 is the growth and development of governmental regulations. However, the exact shape that it would take and the precise nature of this influence remains unclear. Cocking’s view on the market regulations prospect is that while some countries, such as Estonia, have led the way in working out cryptocurrency-related legislation to become market leaders, others, including the US, have adapted a wait and see approach, so as to learn from their experience. Joseph Raczynski, a technology expert with Thomson Reuters, commented on the differences between US jurisdictions, mentioning the pioneering approach taken by some states such as Ohio and Wyoming. “Some will be anti and others for, the fors will have a significant head start”. He added that “we are already seeing the changes to the crypto markets based on rulings. In the short term it will push things down and many of the smaller projects will shake out, some going away. Others will survive”. He emphasised the substantial untapped potential of crypto financial infrastructure projects.

Ultimately, the future of the market is difficult to predict, but few of those seriously engaged in it expect it to collapse. In Dawson’s words, “the volatility of crypto is what we think makes the crypto market a great place to trade, so we don’t want it to change any time soon. It can go bull or bear as it keeps moving!” While a strong bull market is possible, there is no real evidence for it yet. However, as the market adjusts to its losses and to the developing regulations, the survivors of 2018 and new projects alike will have a good chance to attract investors. To do this, they would need a sound concept that would meet a real, underserved need — but they will also need to rely on experts and influencers who came out with their reputations intact in order to reach out to the battle-hardened cryptocurrency community at large.

This report is prepared by Bonanza Kreep. Information contained in the report is current as of the date of the publication, and may not reflect any changes which occur after the date of the publication. Any enquiries regarding this publication should be sent to Bonanza Kreep at [email protected].