In a new study conducted by the Network Contagion Research Institute (NCRI), it has been found that rampant bots on Twitter played a significant role in inflating the price of cryptocurrencies. The study analyzed over 3 million tweets from January 1, 2019, to January 27, 2023, related to 18 different cryptocurrencies. The researchers collaborated with New Jersey GovSTEM Scholars and shared their findings with X Corp., the parent company of Twitter. The study revealed that mentions of certain altcoins by Elon Musk, CEO of Tesla and SpaceX, caused prices to spike by as much as 50% within a day.
One notable example mentioned in the NCRI study is Musk’s retweet on June 24, 2023, featuring a post about a coin called PSYOP created by a pseudonymous Twitter influencer known as Ben.eth. This retweet led to a nearly doubled trading volume of the altcoin the following day. Similarly, a tweet by Musk on May 13, 2023, featuring Pepe the Frog memes, resulted in a more than 50% increase in the price of altcoin PEPE within 24 hours.
The findings of the NCRI study raise significant questions about market manipulation through social media in the crypto markets. The study also sheds light on the challenge faced by Elon Musk in curbing bot activity on Twitter, which has been pervasive for years and continues to persist. Musk, who acquired Twitter in October last year, has claimed a decline in bot activity without providing any data.
According to Alex Goldenberg, the Lead Intelligence Analyst for NCRI, efforts have been made to deter bot creation through API changes since Musk’s team took over Twitter. While this may have reduced crypto promotion and scams, it also hinders independent audits by third-party researchers. Goldenberg recommends that X Corp. should consider stricter account verification, utilization of machine learning for bot detection, and granting special permissions to certified researchers for transparency and combating malicious bot activity.
The NCRI study also highlights how inauthentic activity on Twitter contributed to the rise in the price of tokens listed on the cryptocurrency exchange FTX before its collapse. The researchers found that “bot-like accounts” were used to manipulate market sentiment and drive up the prices of FTX-listed tokens. Six small-cap tokens, including BOBA, GALA, IMX, RNDR, and SPELL, were significantly influenced by inauthentic social media activity on Twitter.
Notably, Alameda Research, the hedge fund associated with FTX, held at least five of these tokens before they were listed on the exchange. The visibility of these tokens was amplified by bot-like activity on Twitter, which coincided with or preceded double-digit percentage jumps in their prices. The study found that spikes in bot activity on Twitter were consistently followed by price increases ranging from 11% to 30% for RNDR tokens.
The Role of Twitter in Crypto Markets
The study also emphasizes the influence of Twitter on crypto markets, as sophisticated investors could extract value from social media-driven price actions. Sam Bankman-Fried, the founder of FTX, acknowledged Twitter’s impact on the crypto markets in an interview conducted in 2022. Bankman-Fried mentioned that people on crypto Twitter could collectively invest a significant amount in a particular token, thereby creating a buzz and driving up its market cap.
FTX, once one of the largest crypto exchanges globally, filed for bankruptcy in 2022. Bankman-Fried now faces federal indictment charges of securities and wire fraud, along with accusations from the Securities and Exchange Commission regarding a foundation built on deception.
The role of bots in manipulating the crypto market through Twitter highlights the need for tighter regulations and transparency in the industry. With stricter account verification, advanced bot detection technologies, and collaborations with certified researchers, social media platforms can combat malicious bot activity and protect investors from market manipulation.
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