A joint study by researchers from Harvard Business School, Indiana University Business School and Texas A&M University found that the long-term investment value of tweets by popular crypto-influencers not only tends to zero, but can lead to a loss of funds.
A team of experts from three institutions analyzed nearly 36,000 posts on the X network on behalf of 180 of the most popular and influential individuals in the crypto community. The study of posts was limited to a two-year period ending in December 2022 and covered more than 1,600 cryptocurrencies.
Researchers have obtained compelling evidence that influencers advice about investing in cryptocurrency is, on average, unfavorable. This confirms the validity of regulators concerns that social media can mislead retail investors. People who represent a large share of the entire crypto market and for whom financial losses can be particularly devastating financially and socially. The future of cryptocurrency cannot be built on viral tweets, and informed investment in digital assets is a long marathon, not a sprint to the moon.
Researchers state: influential bloggers are interested in public attention and income from integrations with brands, while social platforms earn their share from advertising revenue. At the same time, both sides of the process are interested in making a quick profit and do not aim to disseminate useful advice.
This trend is most pronounced among self-proclaimed crypto experts who have a large number of subscribers in X. These individuals are actively exploiting the public sentiment, creating excitement and making buy recommendations, suggesting the possibility of manipulation and misinformation of unsophisticated investors. One of the most disturbing findings of the study were the findings of significant negative long-term returns on such financial recommendations.
For example, over the long term, the average cumulative returns ten and thirty days after a promotional tweet is -2.24% and -6.53%, respectively. A rough estimate shows: if an individual invests $1,000 in a cryptocurrency asset that is not in the top 100 on the date of the tweet and then holds for thirty days, it will result in a loss of $79 (7.9%; 62.8% annualized).
Thus, it is possible to gain profit only by exiting the position shortly after the tweet is published. However, this strategy may not always be feasible due to insufficient market liquidity and artificial limitations of the cryptocurrency project.
