For many retail investors, following the trade recommendations of Key Opinion Leaders (KOLs) seems like a direct path to discovering the next big opportunity. But is this strategy a reliable way to build wealth, or is it based on luck and random chance?
The answer often depends on which influencer you follow. A single successful call that yields 100x returns, or a bad recommendation that leads to major losses, can heavily skew perception due to survivorship bias. So what does the data say about the overall performance of KOL trading advice?
A recent academic study offers some compelling answers.
In February, researchers from Harvard Business School, Indiana University, and Texas A&M University published a paper titled “Cryptocurrency Influencers.” The study analyzed approximately 36,000 tweets from 180 prominent crypto-focused social media influencers over a two-year period ending in December 2022, covering more than 1,600 different digital assets.
Here’s what they found.
Key Findings From the Crypto KOL Study
Using machine learning to categorize tweets and track the performance of mentioned tokens, the researchers reached several critical conclusions:
- Crypto influencer tweets are initially associated with positive returns. However, these are followed by significant long-term negative returns, suggesting very little lasting investment value.
- These effects are most pronounced when influencers discuss low-market-cap tokens, have large Twitter followings, or refer to themselves as “experts.”
- Tweets that expressed more positive sentiment or included clear “buy” recommendations showed even stronger versions of these results.
What the Data Shows
The study revealed several clear patterns in market behavior following influencer endorsements:
- On average, tokens mentioned by influencers saw positive short-term returns of 1.83% after one day and 1.57% after two days.
- Tokens outside the top 100 by market cap saw even higher one-day returns of 3.86% after a mention.
- Returns began declining significantly around the fifth day after the tweet. From day two to day five, the average return was -1.02%, indicating that more than half of the initial gains were erased within just five trading days.
- Over the longer term, cumulative returns averaged -2.24% after 10 days and -6.53% after 30 days.
- These negative returns were even more severe for low-market-cap cryptocurrencies, which often face greater information asymmetry and liquidity challenges.
To put this into perspective: a hypothetical $1,000 investment in a non-top-100 token mentioned by a KOL would result in an average loss of $79 (or 7.9%) if held for 30 days. On an annualized basis, that’s a loss of 62.8%.
The study also found that self-proclaimed “experts” with larger follower counts were associated with even worse long-term performance for the tokens they promoted.
Interpreting the Results
Overall, the findings suggest that the average crypto influencer does not provide profitable long-term investment advice. The only way to profit would be to buy immediately after a tweet is published and sell shortly after—but this is often not feasible due to low liquidity, especially for smaller tokens. It also goes against the common “hold forever” culture prevalent in many crypto communities.
The authors of the study acknowledge that their evidence isn’t entirely conclusive. It’s possible that influencers are simply trend-chasing or promoting tokens that will attract more attention and followers, thereby benefiting their own personal brands.
Another interpretation is that influencers genuinely believe in the long-term potential of the assets they promote, even if short-term market reactions are unpredictable.
Still, the research provides a clear warning: if you hold a token for several weeks or months after it’s promoted by a KOL, the advice is unlikely to be profitable.
The paper also suggests that regulators and media outlets should pay closer attention to these activities to identify potential conflicts of interest.
Frequently Asked Questions
Is it ever profitable to follow crypto influencers?
Short-term gains are possible if you buy immediately after a tweet and sell within the first day or two. However, long-term holds typically result in negative returns, especially for low-cap tokens.
Why do tokens go up after being promoted by a KOL?
Initial price increases are often driven by hype, FOMO (fear of missing out), and coordinated buying among followers. This is usually short-lived and not based on fundamental value.
Should I completely avoid influencers?
Not necessarily—some offer educational content or market analysis. However, treat trade recommendations with caution and always do your own research before investing. For those looking to deepen their understanding, you can explore more strategies on conducting independent analysis.
What’s the main risk of following KOL calls?
The most significant risk is the long-term underperformance of promoted tokens, particularly those with smaller market caps and lower liquidity.
Are “expert” influencers more reliable?
The study found that self-proclaimed experts with large followings were actually associated with worse long-term performance for the tokens they promoted.
How can I make better crypto investment decisions?
Focus on fundamental analysis, diversify your portfolio, invest only what you can afford to lose, and avoid making decisions based solely on social media hype. Consider using trusted platforms to view real-time tools and data for your research.
The bottom line? While crypto influencers can be entertaining and sometimes informative, they are not a reliable source of investment advice. Their recommendations may lead to short-term gains, but the data shows that holding those tokens usually results in long-term losses—especially when following influencers who claim to be experts or who focus on small, speculative assets.
Always think critically, verify information, and remember that if something sounds too good to be true, it probably is.