INFLUENCE OF INSTITUTIONAL AND NON-INSTITUTIONAL ACTORS ON CRYPTOCURRENCIES

Abstract: Cryptocurrencies are digital currencies organized by peer-to-peer computer networks and thus not reliant on any central authority. As such, cryptocurrencies are touted as free from the influence of governments and financial institutions. However, a growing body of literature points to the influence of institutional announcements on the valuation of cryptocurrencies. Yet, it remains difficult to comment on the independent nature of cryptocurrencies in general since the vast majority of studies focus solely on the largest one: Bitcoin (valuation > 500 billion US dollars). Here, I extend the scope of the study three-fold: first, I also look at Ether, the second largest cryptocurrency (valuation > 250 billion US dollars), second, I consider a non-institutional influence: Twitter and third, I shift the frequency to hourly data. Since cryptocurrencies are decentralised by nature, it is of interest to look at the influential power of individuals, in particular those with large social media following. I chose the CEO of Tesla, Elon Musk, who regularly shares his thoughts on cryptocurrencies with his 94.6 million followers on Twitter. My results confirm that financial institutions can influence the valuation of Bitcoin and Ether, but they also demonstrate that, surprisingly perhaps, they share this power with Elon Musk.