How Social Media Influences the Markets

One cryptic tweet from business magnate, Elon Musk, and a share price can skyrocket to unforeseen levels that defy current trends. Never before has the world been so globally-connected, a world where anyone’s voice, no matter how saw, can be heard by literal millions across the globe.

Renowned investor, Andre Kostolany, once said that “facts only account for 10% of the reactions to the stock market and that everything else is just psychology”. Witnessing the influential power of social media move markets daily, one can’t help but think – maybe he’s right.

Moving the Markets with Elon Musk

In late January, Elon Musk made a small edit to his personal Twitter bio that simply read #bitcoin. Bitcoin surged more than 20% to almost $39,000 that day, and this isn’t the first time the mogul has moved the markets with his immense social clout. Musk is the second richest man in the world, so who wouldn’t take his word as gospel?

24 hours before his bio page addition, Musk increased the share price of video game developer, CD Projekt, more than 12% following tweets about the developers’ game, Cyberpunk 2077. “I kinda love Etsy” – A seemingly innocuous tweet from Musk, about the online craft marketplace, led to a 9% share price increase on January 26th.

Bitcoin has been steadily increasing in recent months and Cyberpunk 2077 has featured heavily in the media, but the share price of Etsy hadn’t shown any signs of movement in the premarket ahead of the Musk tweet. It’s rather wild and speculative trading but it’s quite obvious that Musk’s opinion holds some serious weight among investors.

The Weibo Revolution

The media landscape is not what it once was in China. No longer entirely controlled by the government news agency, social media sites have emerged to provide a voice to the masses. Chinese social media platforms such as Zhihu and Weibo have proven influential in moving A-share prices. Just take a look at Weibo- It has 200 million more active users than Twitter and a major information source for the Chinese public.

Information travels so fast on Weibo that share prices have been affected by the simple fact that information is shared to the public faster than an official announcement can even be made! Companies can use followers to influence the markets too. Such as the time that Vanke chairman, Wang Shi, groomed public support on Weibo, ahead of negotiations with major shareholders.

Dangers of Social Media Trading

Like many industries before it, it seems the finance industry has influencers. But influencers are not always the most informed. It is easy for miscommunication to occur online also. Looking back on Musk once again, his “use signal” tweet in January caused a buying frenzy of Signal Advance, a little-known manufacturing company, in no way related to the encryption messaging service Musk was referring.

Between the power of a single tweet and the immense collective might of a determined group, the global connection over social media is proving to influence the decisions of millions of traders.

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