An ad-hoc study in the volatility of niche cryptocurrencies.
Digital currencies are becoming more valuable, perhaps untenably so, and Bitcoin is hardly the only one enjoying returns that would make even the most seasoned gold bug clutch at their pearls.
There are thousands of smaller cryptocurrencies out there, called “altcoins,” that have been buoyed by Bitcoin’s high tide. They’re the penny stocks of the cryptocurrency world—cheap and volatile, but potentially lucrative if you can get in and out at the exact right time. In this Wild West, tech mogul and gutter libertine John McAfee—who now goes by the title "Chief Cybersecurity Visionary" at MGT Capital—is leveraging his large Twitter following (655,000 at the time of writing) to position himself as an investment guru of sorts for these small-time cryptocurrencies by promoting them on Twitter. McAfee has a volunteer staff of “smart kids,” he told me over the phone, to vet the coins.
With someone as famous (or infamous) as McAfee weighing in on these wildly volatile markets, I had to wonder: Just how influential is he, anyway, and what are the real effects of his tweets? In the frothy whirlpool of altcoin valuation, it appears that one man and a tweet may be able to move an entire market.
Read More: Who the Hell Is This Crypto-Genius?
I collected all of McAfee’s promotional tweets from December 15 until now and compared them against the price histories of the digital currencies he promotes. (He also promotes plenty of ICOs, but I limited myself to coins since price charts make those easy to analyze.) After review, tweets from McAfee were reliably correlated with price spikes that sent cryptocurrencies worth pennies—even fractions of a penny—temporarily shooting upwards in value anywhere from 50 to 350 percent.
For example, on December 15, McAfee tweeted that a coin called SAFEX constituted “the majority of [his] holdings.” Minutes after McAfee tweeted about SAFEX, the price of SAFEX spiked 92 percent, according to the site CoinMarketCap (where I sourced all of my prices, due to the granular level of detail the site provides), from $0.014 USD to a high of $0.027, before settling down for a more gradual rise up to its current price of $0.03.
This pattern has repeated itself nearly every time McAfee has promoted a cryptocurrency on Twitter. On December 21, McAfee promoted a coin called Electroneum and its price immediately spiked 57 percent, from $0.07 to $0.11. On December 22, McAfee promoted BURST, and its price jumped 350 percent, up to $0.09. On December 23, it was Digibyte, up 60 percent just minutes after McAfee’s promotional tweet, from $0.05 to $0.08.
He’s promoted five more coins since then, and in every case the spike was swiftly followed by a price correction downwards. Still, it’s worth noting that all of the currencies that McAfee’s promoted—except for two, Humaniq and Factom—have already climbed back up to the heights of their McAfee bump, or above.
While these fractional amounts might seem inconsequential, try thinking of altcoins like rookie baseball cards. If you only have a couple rookie cards, then the value of those cards going up a few cents thanks to a decent season won’t mean much to you; but if you own a thousand of the same rookie cards, those cents add up.
McAfee isn’t the only high-profile tech guy now promoting small-cap cryptocurrencies, but nonetheless triggering price spikes in tiny, volatile markets has made McAfee’s promotions pretty controversial. Numerous forum threads, tweets, and blogs have gone so far as to accuse McAfee of contributing to “pump and dumps”—when early investors in small-cap currencies take advantage of spikes driven by marketing to sell off their holdings to eager newbies.
When I reached McAfee over the phone, he said he was acutely aware of the market chaos his tweets can sow, and attributed it to automated trading bots working off of his advice.
“I admit, I’m very sorry for the people who buy in at the top of the spike—yeah, you’re going to be pissed off"
“Of course the bots increase the pump and dump potential—if you have 2,000 bots come in and all place buy orders, of course it’s going to spike,” McAfee told me over the phone. “I just can’t help that, and I don’t know what else to do; my only other option is to stop recommending.”
“I admit,” he added, “I’m very sorry for the people who buy in at the top of the spike—yeah, you’re going to be pissed off. But if you’re smart, wait and let the chaos happen and then buy in.”
McAfee said that he has taken measures to mitigate the influence of bots, such as making his recommendations a JPEG image instead of text in a tweet. McAfee has also vowed to reduce the frequency of his promotional tweets for coins, from one per day to one per week.
“Had I continued to do [coin of the day], it would have created utter chaos in the entire market,” he said over the phone. “The markets are too small for such a daily thing.”
Indeed, the fact that anybody can look at the timing of McAfee’s tweets and reliably see a correlating spike in price illustrates that altcoin markets are volatile to an absurd extreme. More than that, they’re prone to manipulation by big players, intentional or not.
Of course, a key element surrounding all of this—and especially relevant to the allegations of pumping and dumping—is John McAfee’s own holdings. So, I picked the low-hanging fruit: Are the majority of his holdings still in SAFEX, the coin he promoted on Twitter on December 15, I asked? If so, he would be sitting on a pile of 100 percent gains. If he sold, he’d be rolling in it.
“I’m not going to talk about my financial situation or holdings anymore,” McAfee said. “However, why would I be suggesting long-term investment and then try to make short-term gains? These coins [that are] selling for cents... If I truly believe that they’re the coins of the future, wouldn’t it make sense to hold on to them for a couple years? What madman would take a 100 percent gain over taking 10,000 times that?”
Regardless, McAfee’s taste for anarchy is famous, and at the very least a bit of anarchy is what he’s fomenting by promoting coins worth fractions of a penny to half a million people at once, over Twitter.