WHEN THE LEVERAGE OF THE WORD HAS VALUE IN CRYPTOCURRENCIES
Cryptocurrencies are digital assets that have revolutionised the financial world and one of their characteristics is their high volatility.
One factor that contributes significantly to this volatility is the influence of certain individuals, whom we can call crypto influencers.
In this article, we will explore how the words of influencers can lead to chain reactions among investors, generating significant rises and falls in cryptocurrency prices.
CRYPTO INFLUENCERS – WHO ARE THEY?
They span a wide spectrum and range from tech entrepreneurs, start-up founders, financial analysts to social media personalities and are public figures who have the ability to move markets with a single statement, such as Elon Musk with his cryptic tweets about Bitcoin and Dogecoin.
These individuals, often referred to as ‘cryptoinfluencers’, have become key figures in the crypto world and blockchain technology. Their growing popularity is testament to the power of social media and digital communications today.
In this article, we will explore how the words and influence of these characters can trigger chain reactions among investors, generating significant rises and falls in cryptocurrency prices.
ANALYSIS
We will analyse the psychological mechanisms behind this phenomenon, the associated risks and the implications for the future of the digital markets.
1.- Psychological mechanisms
• Herd effect: The recommendations of an influencer can generate a domino effect, leading many investors to follow the same trend without doing a thorough analysis of the situation.
• FOMO y FUD: Fear of missing out (FOMO), uncertainty and doubt (FUD) amplify the impact of influencers’ statements. This fear of being left out of a lucrative investment opportunity leads many to buy a cryptocurrency simply because its price is rising, without considering the fundamentals of the project.
• Pump and Dump: Some influencers use this tactic to manipulate prices to their own advantage, artificially inflating the price of a coin and then selling their own holdings to cause a sharp drop.
2.- Asociate Risks
• Market manipulation: • Market manipulation: The influence of influencers on consumer decisions is undeniable, but it carries risks. Some use their platform to promote products or services without disclosing their commercial relationship with brands, which can mislead consumers.
• Exacerbated volatility: The influence of influencers in the cryptocurrency market can increase volatility due to mass psychology, market manipulation, lack of regulation and the volatile nature of the market itself. This can lead to significant losses for investors who do not conduct proper research and are driven by emotions.
• Investor protection: It is important to stress the need for financial education and for investors to conduct their own research before making decisions.
3.- Implication for the future of digital markets
It is essential to establish a clear and effective regulatory framework that obliges influencers to be transparent in their business dealings and that punishes misleading practices in an exemplary manner. In addition, consumers need to be educated to be more critical and not be driven by impulse when making investment decisions.
WHEN THE INFLUENCE OF WORD HAS VALUE IN CRYPTOCURRENCIES
Here are some examples of how words can influence the crypto market:
• Elon Musk, CEO of Tesla and SpaceX, has become a key figure in the cryptocurrency market, especially for Dogecoin. His tweets about Dogecoin have caused significant movements in the price of this cryptocurrency, both up and down, although you probably already knew this.
• Wall Street Wolverine, a youtuber known for his phrase ‘it’s a ballsy loonie’, heavily promoted investment in cryptocurrencies, even at times of greatest downturn. His influence led many to lose money.
• Heather Morgan an influencer, also known as ‘The Crypto Queen’, aggressively promoted various cryptocurrencies and NFTs, but many of these investments turned out to be scams.
Conclusion
The influence of individuals on cryptocurrency markets is a complex and multifaceted phenomenon. While influencers can provide valuable information, it is critical that investors are aware of the associated risks and make informed decisions. As the cryptocurrency market continues to evolve, influencer influence is likely to remain a key factor.
Disclaimer: The information set forth herein should not be taken as financial advice or investment recommendation. All investments and trading involve risk and it is the responsibility of each individual to do his or her due diligence before making a decision.
