Crypto Influencer Advice Does Not Pay, Report Finds

Research reveals significant long-term losses from crypto influencers’ advice, highlighting the risks of uncritically taking free investment advice.

Ben Armstrong aka "Bitboy" shocked by some news.
Created by Gabor Kovacs from DailyCoin
  • Study reveals crypto influencer tweets often lead to short-term gains.
  • However, these are followed by long-term losses.
  • The research analyzed 36,000 tweets by 180 influencers. 

The crypto market has attracted many retail investors, who often turn to social media influencers for advice. These crypto influencers claim to provide valuable investment insights to their large followings on platforms like Twitter. 

However, recent research suggests that their advice might not be as valuable as it may seem to some. A recent study shows that this advice, while creating short-term boosts in the price of the tokens, is often followed by significant long-term losses. 

Study Reveals Risks of Following Crypto Influencers’ Advice

On April 19, 2023, researchers Kenneth J. Merkley, Joseph Pacelli, Mark Piorkowski, and Brian Williams published a study examining crypto-influencers’ effects on Twitter. The study analyzed 36,000 tweets from 180 influencers over two years, ending in December 2022, to determine whether the advice was beneficial. 

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They found that tweets from crypto-influencers generally led to short-term positive returns. Specifically, the average return one day after a tweet was 1.83%, and it was 1.57% two days after. For smaller tokens, the one-day return was even higher, at 3.86%. However, these initial gains were often followed by significant long-term losses, with cumulative returns dropping to -2.24% over ten days and -6.53% over 30 days.

Tweets from self-proclaimed crypto experts and influencers with large followings had the most pronounced effects. These influencers often present themselves as authorities in the crypto space, but the study’s findings suggest their advice might lead to more harm than good in the long run. The study also highlighted that tweets with positive sentiment or ‘buy’ recommendations had stronger short-term impacts but also led to more significant long-term losses. 

How Influencers Impact the Crypto Space

The recent findings are consistent with some of the experiences in the past. Numerous celebrities have been accused of undisclosed promotions and pump-and-dump schemes of various cryptocurrencies. This naturally leads to a price increase in the short term but hurts long-term performance.  

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High-profile examples include YouTube star Logan Paul and his CryptoZoo project. Announced in September 2022, CryptoZoo attracted NFT enthusiasts who invested $2.5 million in animal-themed NFTs. However, the project faced delays and accusations of being a “rug pull” when it failed to deliver, leading to substantial losses for investors.

Similarly, celebrities like Kim Kardashian and Floyd Mayweather Jr. have faced legal scrutiny for their undisclosed promotions. In 2021, the SEC charged both for promoting the EthereumMax (EMAX) token, which quickly plummeted in value. 

On the Flipside

  • Controversies around influencer promotions are leading to heightened regulatory scrutiny. For instance, in June 2023, the European Commission received a complaint targeted at crypto promotions on social media. 
  • New European Markets Crypto-Assets (MiCA) rules could also expose crypto influencers to charges of market manipulation

Why This Matters

The study’s findings underscore the need for due diligence and skepticism when considering investment advice from social media. Following influencer recommendations without thorough research can lead to significant financial losses, as evidenced by the short-term gains and long-term declines observed in the study.

Read more about influencer pump and dumps:
6 Most Dramatic Pump and Dump Scams in Crypto History

Read more about Worldcoin’s bid to boost its security: 
Worldcoin Open Sources Security System to Keep User Data Safe

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
David Marsanic

David Marsanic is a journalist for DailyCoin who covers the intersection of crypto, traditional finance, and government. He focuses on institutionalized crypto entities like major cryptocurrency exchanges and Solana, breaking down complex topics into easy-to-understand writing. David's prior experience as a business journalist at various crypto and traditional news sites has enabled him to maintain a critical approach to news while adhering to high journalistic integrity standards.