Market Manipulation Through Social Media
Level 1 - NGMI
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If you’ve been around the cryptoverse for any amount of time, you know that the app formerly known as Twitter is a key source of information.
X is where crypto news breaks, projects promote themselves, and daily debates happen.
In the last bull market there was a ton of buzz around new projects and tokens to the point that people would compete to try and uncover project launches early by scraping your Twitter interactions and follows to try and get an edge.
Having a hyped launch meant a windfall of several million dollars for project founders.
Naturally, this creates incentives for foul play.
Social media bots are programmed to mimic humans and automatically distribute, promote, and interact with content. These bots can be deployed to affect public opinion. In crypto, they can be used to create fake hype and promote pump-and-dump schemes.
It should come as no surprise at all that the foulest player of them all, FTX/Alameda, is being accused of making use of bots to promote tokens they had invested in.
The Network Contagion Research Institute (NCRI) is an independent organization that “provides pioneering technology, research, and analysis to identify and forecast cyber-social threats targeting individuals, organizations, and communities.”
They just released an examination that alleges FTX used bot activity to spur demand for tokens on Twitter.
The report also delves into the recent "memecoin" craze, focusing on coins like $PEPE and $PSYOP. Both these coins, at their peak, reached a market cap surpassing $1 billion. Per their report, the rapid growth of these coins was fueled by a mix of authentic and inauthentic bot-driven activity on Twitter.
Today’s post discusses the role of bots in financial assets and aims to help you defend your capital from social media market manipulation.
The Study
The NCRI study was conducted with the following parameters:
3,000,000 tweets from January 1, 2019 to January 27, 2023
Mentions of 18 coins that were both publicly listed on FTX and promoted by the official FTX handle (@FTX_Official)
Over 180,000 accounts were analyzed, with 6.5% of them believed to be bots
Despite the relatively small number of bots, they generated 20% of chatter about the coins
The study notes that bot activity for coins increased following a listing on FTX, and the proportion of bot tweets about a coin grew more artificial over time.
Genuine discussions about a coin were more indicative of upcoming price shifts compared to artificial bot chatter. However, the impact of artificial discussions was still notably significant.
Below, the NCRI highlights the impact to price after spikes in bot tweets for the RNDR token.
So, we know coins have been and continue to be manipulated using social media activity fueled by bots. How do we know FTX employed this strategy?
Well, we don’t. The NCRI study offers the chart below looking at coins that were allegedly subject to insider trading by Alameda.
Autist note: The Botometer a machine learning algorithm that calculates the probability that a Twitter account is a bot based on its posted tweets, profile information, and local follower network. The Botometer has been used in other studies to identify bot accounts on Twitter. Although it is imperfect, its use is widely accepted in the academic community.
NCRI states that after the promotion by FTX, the average bot scores of accounts who tweeted about those coins rose sharply and continued to increasing steadily, reaching nearly 50% of all tweet volume after 15 months.
Does this mean FTX and Alameda were behind these bot networks, or could it just be that the use of bot networks is so prevalent in the crypto market that it was other investors or even the teams?
It’s hard to pinpoint the source.
To those of us who grew up playing computer games and hanging out on forums, the concept of bots are nothing new. Everyone has come across hackers, scammers, and bots on the internet at some point or another. However, the scale to which bots are being employed towards financial assets is new.
Remember the GameStop trading frenzy in 2021? An analysis by Massachusetts-based cybersecurity company PiiQ Media revealed the role of bots on major social media platforms during this saga, suggesting an intricate web of influence than initially perceived.
Like NCRI, PiiQ Media did a study aimed at understanding the role of inauthentic social media activity, particularly from bot-like accounts, in the GameStop trading frenzy.
The analysis indicated that bots on platforms like Twitter, Facebook, Instagram, and YouTube were actively hyping up GameStop and other "meme" stocks. That means some set of organized economic actors were behind some of this activity.
PiiQ Media examined posts across the mentioned social media platforms, searching for patterns in keywords related to GameStop. They identified very similar daily "start and stop patterns" in the GameStop-related posts, especially at the beginning and end of the trading day. PiiQ believes these patterns to be indicative of bot activity.
PiiQ estimated that tens of thousands of bot accounts were hyping GameStop, meme stocks, and even Dogecoin. Thousands of these fake accounts could be purchased for as little as $200.
The biggest implication here is that this suggests a level of market manipulation that goes far beyond individual retail investors. When organized actors can use bots to influence stock prices, it poses significant challenges for investors who rely on social media sources for information.
With the development and growing usage of AI tools, this manipulation will only get harder to detect in the years to come.
These instances underscore the immense power of social media in today's financial markets. While social media platforms can democratize information flow, they can also be tools for manipulation.
Where do we go from here?
We now live in a world where it is becoming increasingly difficult to differentiate between what is fake or real online. There is also the “gray area” where something real can be enhanced with greater ease using AI tools.
Social media platforms such as X are looking to verify all real users, but this prevents users from maintaining an anonymous online presence. Bots continue to be a problem. Obvious bots are easily avoidable (has anyone seen that DeFi money bot??), but what about entire networks of bots that talk like you and I?
We haven’t even started on how bots influence politics on social media - an issue that will surely be at the forefront next year.
As a crypto investor, you have to be even more disciplined and perceptive about what you consume, where you consume it, and who you consume it from.
Elon Musk isn’t exactly going out of his way to reduce market manipulation on X. In fact, he subtweeted about both the PEPE and PSYOP tokens. Musk even changed the Twitter logo to Doge earlier this year.
It’s safe to assume that projects taking advantage of bot networks to generate artificial attention and messaging for their project are likely to be pump and dumps. For those who were around in 2021, you will remember Mekaverse, a project with over 200,000 Discord members and Twitter followers that was a massive flop.
Mekaverse was a very profitable trade if you were able to mint it and sold it quickly, and painful if you bought after minting.
When in doubt: sanity check. If you come across a new token that seems to be all over your Twitter feed, send it to a friend to make sure you’re not getting emotionally jacked up in isolation over something you’re reading online (bots or not).
Paid subscribers can always drop a comment on a DeFi Education post and either our team or someone in the community will respond (August Q&A later this week, by the way).
Until next time, anon..
Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are opinions from an anonymous group of cartoon animals with Wall Street and Software backgrounds.
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0/10 unsubbed did not explain the defi money glitch everyone's talking about
Where can I find that defi money that shows up on every one of your tweets?