A new study conducted by the Network Contagion Research Institute uncovered the impact of high levels of bot activity on the value of cryptocurrency listed and traded on FTX and Alameda Research. This was most evident after X Corp. CTO Elon Musk tweeted about two altcoins, as it resulted in a spike in bot activity and a subsequent surge in the price. Bankman-Fried and his team were cognizant of the strong correlation between Twitter activity and movements in the crypto market.
An investigation by the Network Contagion Research Institute (NCRI) published Wednesday found that bots on Twitter likely multiplied the price of cryptocurrency, including coins traded by individuals at hedge fund Alameda Research before its collapse. The research was done in partnership with New Jersey GovSTEM Scholars, and NCRI shared their discoveries with X Corp. prior to making them public.
Elon Musk, CEO of Tesla and SpaceX, who completed acquisition of Twitter last October, may have caused certain altcoins values to surge up to 50% within a day as a result of a retweet on June 24, 2023. The retweet involved a picture of a kitten and the caption, "I wake up there is another PSYOP," a coin created by a Twitter user called Ben.eth. As CoinMarketCap data shows, trading for the altcoin almost doubled the following day. In addition, a tweet from Musk using Pepe the Frog memes resulted in a greater than 50% jump in the price of altcoin PEPE within a day. It is thought that both the authentic tweets and bot activities regarding the altcoin, which is based on a popular far-right meme, were influences on this dramatic increase.
The NCRI findings call attention to the possibility of social media influencing market manipulation across the cryptocurrency market. Alex Goldenberg, Lead Intelligence Analyst for NCRI, said that since Twitter was taken over by Musk's team, API alterations were implemented in order to reduce bot creation, with the potential to lower crypto promotion and fraud. However, these changes come with certain drawbacks, such as blunting independent audits by third-parties. Goldenberg recommends that if bot activity remains high, X Corp. should consider additional measures, such as more rigid account confirmation, machine learning for bot identification, and special permissions for certified researchers for greater transparency while battling bad bot actions and other Internet-based dangers.
X Corp., however, has raised fees for access to data for researchers, and has gone so far as to file lawsuits against research organizations looking into hateful speech and other digital perils on the platform. Responding to these activities, House Democrats have sounded their displeasure. X Corp. has not commented in response to a request.
The NCRI's research showed how inauthentic activity on Twitter was key in driving the prices of tokens listed on FTX prior to its collapse. According to Goldenberg in an interview with CNBC, "bot-like accounts were used to manipulate market sentiment and drive up the price of FTX-listed tokens." The study found that six small-cap tokens were heavily impacted by fabricated social media chatter on Twitter: BOBA, GALA, IMX, RNDR, and SPELL. Prior to their listing on FTX, Alameda owned at least five of the tokens and it was these bot-like posts on Twitter that enabled the visibility of the tokens. For RNDR, artificial posts and actions on Twitter coincided or preceded double-digit price increases of up to 30% in a single day.
It is known that Bankman-Fried and his FTX team were aware of Twitter's role in the crypto markets and their capacity to capitalize off of the social media driven prices. Bankman-Fried stated in a 2022 interview on Bloomberg's Odd Lots podcast that "If people on crypto Twitter or other similar parties put $200 million in the box, everyone will be like 'Ooh, box token, maybe it's cool. If you buy in box token, it will appear on Twitter and it'll have a $20 million market cap."
FTX was one of the largest crypto exchanges before filing for bankruptcy in 2022. Bankman-Fried now faces federal indictment for supposedly committing securities and wire fraud, as well as charges from the SEC alleging he built his empire on "deception". Neither the SEC nor FTX have commented on this story. To read the full NCRI study, click here.
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