A recent study by scientists from Indiana University, Harvard Business School, and Texas A&M University reveals that recommendations from crypto influencers often result in financial losses for investors. According to Chinese journalist Colin Wu, the study indicates that the average accumulated return on positions based on signals from crypto influencers on social media platform X decreased by 2.24% after 10 days and by 6.53% after 30 days.
The comprehensive analysis involved examining 36,000 tweets from 180 prominent crypto influencers, covering recommendations for 1,600 different assets over a two-year period ending in December 2022. The research showed that while there were short-term gains following these recommendations, with profitability of 1.83% and 1.57% on the first and second days respectively, the long-term effects were negative.
Interestingly, tokens with smaller capitalizations saw a 3.86% increase the day after recommendations were made, but this positive effect quickly reversed over time. The study highlights that the initial boost in prices is often due to the immediate influence of expert tweets, particularly those from influencers with large followings and who present themselves as experts in the field.
These findings align with regulatory concerns that crypto influencers may be misleading investors. The research underscores that while influencers can drive short-term price spikes, their recommendations tend to result in long-term losses for followers.
Adding to the conversation on social media’s impact on the crypto market, a study from February found that positive sentiment expressed through emojis in social media posts could predict upward movements in cryptocurrency prices. By strategically buying Bitcoin when positive sentiment was detected and selling it the next day, researchers were able to achieve consistent profits, outperforming standard market trends.
Overall, this research provides critical insights into the often adverse impact of crypto influencer recommendations on investor returns and underscores the need for caution and due diligence in the volatile cryptocurrency market.
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