When Elon Musk Changes his Tone, Does Bitcoin Adjust Its Tune?

Abstract

We present a textual analysis that explains how Elon Musk’s sentiments in his Twitter content correlates with price and volatility in the Bitcoin market using the dynamic conditional correlation-generalized autoregressive conditional heteroscedasticity model, allowing less sensitive to window size than traditional models. After examining 10,850 tweets containing 157,378 words posted from December 2017 to May 2021 and rigorously controlling other determinants, we found that the tone of the world’s wealthiest person can drive the Bitcoin market, having a Granger causal relation with returns. In addition, Musk is likely to use positive words in his tweets, and reversal effects exist in the relationship between Bitcoin prices and the optimism presented by Tesla’s CEO. However, we did not find evidence to support linkage between Musk’s sentiments and Bitcoin volatility. Our results are also robust when using a different cryptocurrency, i.e., Ether this paper extends the existing literature about the mechanisms of social media content generated by influential accounts on the Bitcoin market.

Bitcoin price fluctuation by Twitter sentiment analysis pre- and post- COVID- 19 pandemic

“…The ndings of this study can conclude that Elon Musk's tweets played a signi cant role in in uencing the investors' opinion on Bitcoin, which led to the changes in its price movement. This nding also corresponds with the nding from (Huynh 2022). The results of the T&Y Bilateral Granger causality tests correspond with the ndings of the Johansen cointegration tests.…”

“…Social media like Twitter has become an essential platform for millions of people to express opinions about all kinds of issues and topics, including their perspectives on investing in cryptocurrencies (Kraaijeveld and De Smedt 2020; Huynh 2022; Trigka et al 2022). In 2021, Twitter became a prime media site for news related to Bitcoin due to Elon Musk, the CEO of Tesla and the most in uential investor, who criticised Bitcoin heavily on Twitter (Huynh 2022). Researchers also increasingly acknowledge Twitter as a valuable resource for solving numerous issues (Kraaijeveld and De Smedt 2020).…”

Entrepreneurs as influencers: the impact of parasocial interactions on communication outcomes

“…He has – to our knowledge – not been engaged as a professional third-party endorser for other brands. His social media content includes posts about his professional expertise, his business field and the products and services of his companies (Ante, 2021; Huynh, 2022). Therefore, Musk fits the definition of an influential entrepreneur formulated by Guiñez-Cabrera and Aqueveque (2022).…”

A Comparative Study of Bitcoin’s Price Fluctuations and Twitter Sentiments

“…There is certainly no doubt that social discourse on the internet has the potential to sway consumer choice as is evident in another case where Elon Musk merely tweeting the hashtag #bitcoin in one of his tweets the same month ushered in an increase of about $5,000 in the price of Bitcoin, increasing the overall market capitalization for the entire crypto market (Huynh, 2022).…”

“…Coupled with the inability to shop at retail stores and the lack of mobility of average consumers during the Coronavirus outbreak and the lockdowns that followed, the discourse that followed this one event in time led to a compounding effect in inflating the value of Bitcoin. Although researchers like Ante (2022) and Huynh (2022) have tried to correlate Musk's ability to sway Bitcoin trade as the singular and admirable quality of the billionaire, what they've largely failed to realise is that his tweets do not account for much more than the ignition for a much broader discourse that then builds an overarching sentiment driving consumer choice.…”