A study recently determined that a surge of bot activity on Twitter contributed to a price hike of a cryptocurrency listed on FTX and traded by Alameda Research. Analysis conducted by the Network Contagion Research Institute additionally suggested that both bot action and prices rose significantly soon after announcements made by Elon Musk, CTO of X Corp., on two different altcoins.The impact of Twitter on the crypto markets was obvious to Bankman-Fried and his team.
A new study from the Network Contagion Research Institute published Wednesday has revealed how rampant bots on Twitter (now known as X) helped to inflate the value of cryptocurrencies, including coins traded by insiders at FTX hedge fund Alameda Research prior to its collapse. Drawing on their findings, NCRI researchers shared their results with X Corp. days ahead of publication.
According to NCRI's analysis of more than three million tweets from January 1, 2019 to January 27, 2023 related to eighteen different cryptocurrencies, mentions of certain altcoins by Elon Musk -- CEO of Tesla and SpaceX, and leader of X Corp.'s acquisition of Twitter, which concluded last October -- appear to have caused prices to surge as much as 50% in a single day.
As an example, the research team pointed to Musk's June 24, 2023 retweet of a post featuring a kitten and the caption, "I wake up there is another PSYOP," a coin created by the pseudonymous Twitter influencer known as Ben.eth. In the following 24 hours, CoinMarketCap data suggests that trading of this altcoin nearly doubled in volume.
In a separate instance, a Musk tweet posted on May 13, 2023 featuring Pepe the Frog memes provoked a more than 50% jump in the price of altcoin PEPE within 24 hours. This tweet not only sparked authentic conversation, but also ignited bot and promotional tweets concerning the far-right meme-based altcoin.
In light of the NCRI study's findings, it is clear that social media-driven market manipulation is a considerable issue in the crypto markets. Alex Goldenberg, Lead Intelligence Analyst for NCRI, said that "since Musk's team took over Twitter last year, API changes were made to discourage bot creation, possibly reducing crypto promotion and scams. However, these changes come with trade-offs as they also hinder independent audits by third-party researchers."
Goldenberg recommended that, if bot activity persists, X Corp. should "consider stricter account verification, machine learning for bot detection, and special permissions for certified researchers to ensure transparency while combating malicious bot activity and other forms of online harm."
It is worth noting that X Corp. has recently been taking steps to climb the price for researchers to access data, while having filed lawsuits and threats against researchers probing hate speech and other online harms on the platform. As such, NCRI partners with Bright Data for complimentary access to social media data, according to Goldenberg. X Corp. has yet to remark on the article.
An NCRI study has revealed the role of inauthentic activity on Twitter in driving up the price of tokens listed on FTX prior to the crypto exchange's collapse. Goldenberg told CNBC in an interview that "bot-like accounts were used to manipulate market sentiment and drive up the price of FTX-listed tokens". Six small-cap tokens, namely BOBA, GALA, IMX, RNDR and SPELL, were identified as having been particularly affected by the activities of these inauthentic accounts. Alameda reportedly held five of these tokens before FTX's listing of them and the increased visibility brought about by the bot-like activity on Twitter resulted in significant price rises for one token, RNDR. Increases of up to 30% within a single day were noted on four separate dates from 2022 to 2023 that coincided with or preceded spikes in bot activity on Twitter.
Bankman-Fried and his team had acknowledged the influence that such activity on Twitter had on the crypto markets and the possibility of investors extracting value from it. He had said in a 2022 Bloomberg podcast that the collective investment of $200 million into a token could lead to "everyone's gonna be like, 'Ooh, box token. Maybe it's cool. If you buy in box token,' you know, that's gonna appear on Twitter and it'll have a $20 million market cap."
FTX filed for bankruptcy in 2022 and Bankman-Fried has since been charged with securities and wire fraud by the SEC and additionally indicted by the federal authorities. Representation for Bankman-Fried declined to comment and the SEC and FTX did not immediately respond to a request for comment. The full NCRI study can be read here.
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