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When Elon Musk Changes his Tone, Does Bitcoin Adjust Its Tune?
1UEH Institute of Innovation (UII), University of Economics Ho Chi Minh City (UEH), 59C Nguyen Dinh Chieu Street, District 3, Ho Chi Minh, Vietnam 70000 Vietnam.
Computational Economics
|January 19, 2022
Summary
Elon Musk's Twitter sentiment significantly impacts Bitcoin returns, showing a causal relationship. However, his sentiment does not appear to affect Bitcoin
Area of Science:
- Financial Markets
- Computational Social Science
- Cryptocurrency Analysis
Background:
- Social media influence on financial markets is a growing area of research.
- Identifying key influencers and their impact on cryptocurrency is crucial for market understanding.
Purpose of the Study:
- To analyze the correlation between Elon Musk's Twitter sentiment and Bitcoin market price and volatility.
- To investigate the Granger causal relationship between Musk's sentiment and Bitcoin returns.
Main Methods:
- Textual analysis of 10,850 tweets from December 2017 to May 2021.
- Application of the dynamic conditional correlation-generalized autoregressive conditional heteroscedasticity (DCC-GARCH) model.
- Rigorous control for other market determinants.
Main Results:
- Elon Musk's Twitter sentiment exhibits a Granger causal relationship with Bitcoin returns.
- A tendency for Musk to use positive language in tweets was observed.
- Evidence of reversal effects in Bitcoin prices following Musk's optimistic tweets.
- No significant linkage found between Musk's sentiment and Bitcoin volatility.
Conclusions:
- Influential figures' social media content can demonstrably affect cryptocurrency markets.
- The study extends understanding of social media mechanisms on the Bitcoin market.
- Findings are robust, confirmed with analysis on Ether.