By Michael Kamerman, CEO Skilling
The FCA recently reported that an estimated 2.3 million UK adults currently hold cryptocurrencies. Almost 20% of those buyers said they were driven by FOMO (fear of missing out). Social media is a key driver into the rise of cryptocurrency, but just how influential is it?
The Musk Effect
From Elon Musk sending bitcoin prices rocketing with a Tweet, to Snoop Dogg’s advocacy of Dogecoin and Gene Simmons tweeting about his own investments, celebrities aren’t just endorsing cryptocurrency via social media, they’re making inroads into the market. But should an increase in blue-tick endorsement on social media leave traders wary?
When Elon Musk tweeted a picture of Dogecoin, the price of the cryptocurrency quadrupled within four hours. Posts on Twitter, Instagram and TikTok are leading the masses to invest in cryptocurrency in an aim to get rich quick, but many are overlooking the volatility of the market, leading to big losses.
However, with social media chat rooms beginning to resemble the squawk boxes on fast-paced trading floors, it is undeniable that a new generation of retail traders has emerged, who will continue to influence the stock market, needing only the access of a smartphone or computer to begin trading.
Crypto & Community
Over the last six months, there has been a sharp surge in retail investment interest in the cryptocurrency market. The long-term trend is clear: crypto is moving into the mainstream. One key driver behind this movement is the growth of a community of amateur investors who coalesce on social media platforms to discuss and exchange their options while swapping tips. Through a combination of lockdown-induced time to spare, appetite to generate alternative income streams, and access to a volume of online trading platforms, there’s never been so much retail activity and interest in crypto markets.
What brings together today’s online-centered investment community is collective action, where investors and traders are almost encouraged to take risks to generate greater rewards. Coordinated social media hype, such as the frenzy around ‘meme stock’ Dogecoin, have become pop culture touchstones and subsequently have created a strong tailwind for cryptocurrencies. Social media has led to the FOMO factor remaining at fever pitch. Everywhere you turn market exuberance is showing no signs of stalling, even in spite of volatile price movements.
Social media-fuelled revolts have proved useful for retail traders and investors seeking greater access, influence and control. For instance, the Dogecoin episodes continue to illustrate the power of a band of retail investors who are out to prove a point, as opposed to focusing solely on turning a profit.
Social media knowledge rush
With a ready-market for crypto-related information, countless social media groups, Tik Tok and YouTube channels dedicated to crypto education have come to dominate market activity. A plethora of “finance gurus” and amateur investors coalesce on various channels to share tips on a 24/7 news feed cycle. There are few educational resources or market insights you cannot access online today, which is encouraging for younger investors entering the market seeking to gain valuable knowledge when operating in a space that is equally as guilty for rattling off complex jargon.
Whilst this is a hugely positive development, with a number of valuable educational content streams now available, there are still major areas of concern. Bad actors in the form of social media influencers proliferate the space, advertising courses alongside flashy images of their “winnings” in the form of showing off their wealth on social media, attempting to spur investors on to purchase low-performing cryptos to drive the price up. Many retail investors new to the space get caught in the crossfire of these scammers, taking short-term and ill-advised speculative decisions, rather than from well-intentioned and knowledgeable investors.
However, another interesting extension of social media’s impact on the crypto evolution is on the rise: crypto-based social applications. New crypto-based social networks, such as Discord and Telegram, have popped up to provide knowledgeable spaces for discourse around the more technical aspects of cryptocurrency. With crypto enthusiasts flocking to access these emerging online spaces to communicate in real-time, it looks like this function of social media for today’s traders will become a mainstay.
Being social media savvy
While it is easy to be lured into the hype social media brings to the world of crypto, discernment is an essential skill. When everyone on your feed talks about the hottest crypto asset, make sure to take a beat before getting swept up in the popularity. This isn’t territory to jump into without doing your research first and establishing whether it is the right product for you. For example, if you only have time to trade during the evening or don’t really understand cryptocurrencies, it’s wise to consider alternatives because the current price of an instrument is only one part of the equation.
On the surface, social media influencers or posts which promise the world, such as “learn how to make millions now” or anything as grandiose, need to be at the top of your red flag list – no matter their blue tick status. Gaining a foothold in the crypto market is certainly available for the taking, but no one becomes a master crypto trader overnight even if social media puts up a promising guise, so navigate with caution to come out on top.