Social media plays a huge part in the price fluctuations of cryptocurrency. As an investor, what should you be looking out for when getting advice from social media?
Cryptocurrencies like Bitcoin and Ethereum are notoriously volatile at the best of times. Economic factors can have a massive impact on this, sending prices soaring or crashing in an instant.
Add social media to the mix, and this becomes heightened. Just like it can influence stock prices, social media can drastically change crypto valuations. As an investor, there are several pitfalls you should avoid.
Estimated reading time: 5 minutes
Table of Contents
The Non-Social Media Factors Impacting Cryptocurrency
There are factors influencing the price of cryptocurrencies that often have no relation to social media influence. Generally, these are based on economic factors, particularly in the United States.
This was evident in the past week, where a bearish trend formed across the crypto market sector due to cooling economic conditions. This was in a week when Bitcoin and Ether saw steep corrections.
Over the last month, the XRP price has been one of the biggest losers. It was at $2.99 on Monday, the 6th of August, but began a downward trend before a drop on Sunday, the 2nd of November. This saw it fall to $2.23 as of Wednesday, the 5th of November.
Falling Prices
Falling prices have been a result of macroeconomic trends casting doubt on risk assets. The US Government shutdown is the overriding factor, which is now surpassing 35 days.
Added to this was the Federal Reserve’s minor base rate cut, with hints that it may be the last of the year. Binance notes that while cuts are often viewed as bullish, Bitcoin’s link to Fed policy is weak and volatile.
Prices already reflect expected cuts, so the real impact depends on how Fed actions differ from expectations and the broader economic context. This Bitcoin price then impacts the wider altcoin market.
The Role of the Memecoin
No branch of cryptocurrency is more intrinsically linked to social media than the memecoin. These coins are based on internet jokes, characters, and ‘memes’.
While they are often created with humorous intent, many of them soon accrue significant value, particularly if they become in demand.
Pepe is a perfect example of this. A green frog, he was created by cartoonist Matt Furie in the webcomic Boy’s Club. Pretty soon, he was spread all over messaging boards such as 4Chan and Reddit, along with social media channels like X Twitter.
He was even, at one point, adopted by the Alt Right movement, which led to a long legal battle between the creator and the movement to dissociate the image from it.
Pepecoin is one of the original meme coins, which has been operating since 2016. Since then, it has experienced major price fluctuations, often driven by demand on social media.
On the 1st March 2024, it went from $0.4254 to $6.9681 by the 12th of April. Much of this was driven by social media buzz, and the coin itself would never have been created if it were not for Pepe’s status as a meme.
The Role of the Influencer
The crypto influencer has a lot of say in how markets are influenced. They often break news about market changes, which can prompt others to jump on board.
For example, a small correction can suddenly turn into a bigger one if influencers tell people to buy or sell.
Misuse
As the crypto market is decentralized and unregulated, it can lead to misuse, and many pump-and-dump schemes have resulted. This has been true of the many celebrity scams in the memecoin department.
Kim Kardashian was recently fined $1.26 million for advertising EthereumMax on her Instagram page. Also involving boxer Floyd Mayweather and Basketball player Paul Pierce, she was reportedly paid $250,000 for the promotion.
The action alleged that they had promoted EthereumMax in a pump-and-dump scheme designed to inflate its price before selling it to investors.
Mr. Beast
Still ongoing is the media attention over Jimmy Donaldson, also known as Mr. Beast. This famous YouTuber has publicly denied any involvement in large purchases of the cryptocurrency Aster.
The allegations are that he recently bought $320,000 worth of cryptocurrency, bringing his holdings to $1.28 million. While there is nothing explicitly illegal about buying crypto, research collective Loock.io believes it has traced over 50 wallets linked to him that have exhibited characteristics of pump-and-dump schemes.
The Human Factors Social Media Crypto Can Tap Into
While social media and cryptocurrency are very modern, digital-first inventions, they tap into several very human emotions. This is what makes social media have such an impact on cryptocurrency prices.
The first of these is the fear of missing out, also known as FOMO. People don’t want to miss out on profits others are making, so they jump on opportunities without fully understanding them.
Very similar to this is herd mentality, in which people follow the crowd. This can override a person’s judgment, as they believe the actions of a large group should be followed without considering the real reasons behind the movements.
Overconfidence
Social media can also lead to overconfidence. Celebrity endorsements and stories of price rises can often whip up a narrative about a cryptocurrency.
However, they often fail to highlight any losses incurred or potential issues, leading to overconfidence in the market.
Conclusion: Social Media Crypto Influence on Prices
Social media is not all bad, however. There are those who genuinely report on market movements without bias. The problem is finding them and digging out ones you can trust.
Stick to mainstream media outlets for this type of news and exchanges. They often have direct information and statistics to back up claims. You can also use them to check facts about cryptocurrencies instead of social media speculation.
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