How Influencers Contributed To The Recent Volatility In Crypto
Cryptocurrency is going through a bit of a rough patch. You could say it was always sort of rough in the cryptocurrency world with the constant volatility, but the trend was generally trending up in recent months. But it’s quite different now. This is sort of the Black Friday on Wall Street equivalent, and there is no “closing of the market” to quell the fall.
At the time of publication written, Bitcoin, the largest of cryptocurrencies by market cap, is trading at $32,000, down from the heady heights of $64,000 that it had hit mid-April. However, Bitcoin is not alone in this slump. Other coins, like Ethereum, Dogecoin, Litecoin—are all going through the worst selloff in history.
This storm has been brewing for quite some time. There has been increased pressure from regulatory authorities and central banks to regulate the currency, pressure from environmental groups and activists who speak out against the energy-intensive crypto-mining process, and much more.
There are quite a few names and quite a few comments that have all compounded into the volatility that we see today. But, amid all this, the role that influencers have played in this recent volatility stands out. This article looks at the role influencers played in this story.
Crypto Is Incredibly Volatile
Before we go into the role of influencers, it is also good to understand this. Cryptocurrency has been notoriously volatile. One of the biggest issues with this market is that there is little to no predictability associated with cryptocurrency. You can fairly estimate the market response to a stock by assessing financial performance and looking at other governance factors. But there is nothing of the sort available if you are to assess cryptocurrency. This makes it a risky investment.
Some other critical aspects also cause this volatility. Here are the top ones.
No Centralized Regulation
Unlike other financial assets that are traded in markets, cryptocurrencies are not regulated by a central authority. The trading takes place over a set of exchanges, each working on its own policies and processes. With no regulation or control, and this level of decentralization, cryptocurrency susceptible to volatility
A Large Number Of Retail Investors
Unlike its humble beginnings, where the investors were mostly tech geeks who are adventure seekers, crypto today has a wide range of retail investors. Thanks to the emergence of several independent exchanges and trading apps like Robinhood and Coinbase, there has been a surge in retail investors.
Unlike institutional investors, these retail investors are more susceptible to changes in the market. It is quite easy for the rates to slide if there is some level of negative swing in sentiment or a sell-off of some kind.
What Credible Information Is There?
If you have been following the news of cryptocurrency in recent months, you would have seen a whole lot of pieces about memes, tweets, and other drama taking center stage. The cause is simple: there is a clear lack of credible information in the world of crypto, and it has been ruled by the words and actions of a group of celebrities and influencers.
We tend to find a lot of speculation, rumor, cryptic tweets, and very little actual information or in-depth analysis. This lack of information makes the market very sensitive and volatile.
Influencers And Cryptocurrencies
Let’s talk about the role influencers have taken up in the space of cryptocurrency. Cryptocurrency influencers exert greater influence on the community than many influencers from other domains. This is partly because not many people are openly willing to evangelize crypto, fearing regulatory action. But the ones that do control the sentiments of a majority of the community.
There are also the aspects of marketing to talk about here. Until recently, cryptocurrency services were not allowed to run ads on social media and traditional media channels. Google, Facebook, Twitter, and Reddit banned ads dealing with cryptocurrency trading and initial coin offerings. These platforms turned to influencers to fill the gap and reach a wider audience. These influencers soon gained considerable traction and following in this domain.
We at Viral Nation dealt with a significant number of queries from cryptocurrency coin companies to run influencer campaigns. At the time, we decided not to entertain these queries out of concern about frauds.
In a recent article for Tearsheet, Viral Nation co-founder Joe Gagliese said, “It’s not something we want to tie our horse to. It’s hard for us to distinguish reality from fraud or scams. We understand that there are a lot of legitimate companies and players in that space — we understand that — but it’s best to make sure we keep our influencers safe as well as their audiences from something risky.”
Elon Musk is probably the alpha influencer in the crypto world. There are very few people with the power to wipe billions from Bitcoin trading accounts with a few words. Or memes, as the trend goes. Elon Musk is key to this story of the recent volatility and the overall story of ups and downs of cryptocurrency value.
Musk was perhaps one of the first major entrepreneurs to bet on crypto by investing in Bitcoin through Tesla. He also made it a point to talk about Bitcoin, often sharing his disdain towards the traditional financial markets. His attention to Dogecoin, popularly termed as a meme coin, saw its value skyrocket before his Saturday Night Live performance of calling it a “hustle” brought the value back down. This was after other celebrities like Snoop Dogg and Mia Khalifa ventured their support, further increasing the influence.
Beyond these celebrity names, there are quite a few other influencers who have been educating and controlling opinions in the cryptocurrency domain. John McAfee, Anthony Pompliano, Vitalik Buterin, Roger Ver, and many others have millions of followers between them on various platforms. They educate these followers on investing in crypto and evangelize products they have invested in or collaborated with.
There is also the case of external influencers, especially climate activists, who have been raising red flags on cryptocurrency mining and its energy usage. Even governments are taking note and enforcing regulations. China is perhaps the leading charge on this, as a large portion of the mining occurs there.
To sum up, influencers, including Elon Musk, perhaps control most of the market sentiment. And, in crypto, where there are not many expert analysts with their soothing words, it doesn’t take much for the world to devolve into chaos.
What Did Influencers Do This Time?
Let’s start with our alpha influencer, Elon Musk. He has flip-flopped on his position on Bitcoin since February. Tesla declared its intentions to end plans to accept Bitcoin as payment for their cars on May 12, after declaring that they would begin accepting Bitcoin in February. That was what began the slide for not just Bitcoin but most of the cryptocurrencies.
Elon Musk also tweeted breakup memes that further jeopardized the value of Bitcoin and other cryptocurrencies in general. This is perhaps only a trigger, following the intensifying pressure from regulatory bodies and climate activists. All this has influenced the emotions of crypto investors.
Cryptocurrencies and other blockchain-based digital assets are symbols of an emerging alternate financial market, one collectively believing in the power of technology and democratizing financial markets. This alternative is built on a collective and not based on traditional regulatory frameworks that control traditional financial instruments.
The visible faces and audible noises have an outweighed impact on the believers and investors in this system.
The rise in influence of these influencers was seen during the meme stock incident at the turn of the year, where a social media frenzy saw retail investors short squeeze a major financial investment firm. Many of these investors are also looking at Crypto as an avenue for investment. The rise in the number of trading platforms and cryptocurrencies further made investing in cryptocurrency that much easier.
Retail investors are quite easily spooked by such events, tending to sell their holdings as early as possible. That is what is happening at this time. Such slides are easily noticed in a sensitive market, and it becomes hard to control, even for the influencers. There have been calming voices and actions of encouragement from other sectors, like Square investing considerable sums of money in building a solar-powered mining facility and El Salvador making cryptocurrency valid tender. But these have not had much of an effect.
The role of influencers in preparing the ground for this volatility and even triggering it is quite easy to decipher. Influencers have been the go-to channel for any product or service working on cryptocurrencies. While it did its job and brought more money into cryptocurrency, this influence has this sell-off as an unintended consequence.
We have to wait and see what happens, but if we are to believe the words of evangelists and experts, this is a temporary slump—a market correction of sorts to bring the values down to more realistic levels from the highs that they rode to on the hype.
Cryptocurrencies are certain to see more volatility, more challenges in terms of regulatory reforms, and issues of legality to deal with in the coming few months. But it is also difficult to deny the power and potential such digital currencies have in our future. Whatever happens, it is sure that influencers will yield unmatched power and influence and will continue to drive opinion on cryptocurrencies.]