Market and regulatory implications of social identity cohorts: a discussion of crypto influencers

Abstract

Merkley et al. (2023, RAST Conference) examine incentives for self-proclaimed expert cryptocurrency influencers to recommend digital coins on Twitter (now X), and the digital coin price effects from these disclosures. They report evidence that influencers may exploit market investors via potential pump and dump schemes. While plausible, researchers may develop a broader understanding of influencers’ incentives, and their influence on crypto investors, by considering how investors engage these markets for social identity needs that enhance utility (e.g., Akerlof and Kranton 2000). Social-psychological research indicates that a person’s social identity needs can powerfully influence her behavior, even towards maladaptive. This paper discusses how crypto influencers create social identity resonance. It then discusses how influencers can leverage this resonance for potentially lucrative financial opportunities, which might manifest in different expected crypto price patterns. The paper concludes by recommending more research on influencers’ experience, networks, and communication channel choices, effects of video relative to text communication, and whether social identity cohorts are increasingly influencing prices and undermining regulatory trust in traditional markets.