For years, social media has served as the writing on the wall. But, can it be used to predict the prices of cryptocurrencies? A recent study conducted at the Southern Methodist University in Texas says that it can. The twenty-two page 2018 report looked at the volume of posts on social media website Twitter. It also looked at trends in searches provided by Google and compared the results with the prices of cryptocurrencies.
To be clear, this isn’t the first study that looked at the volume of social media posts related to price. Previous studies had suggested a correlation between volume and price as well as sentiment and price. However, these studies have become outdated as crypto markets have changed and matured.
Previous efforts to predict cryptocurrency fluctuations relied on Twitter sentiment analysis to serve as a proxy for future cryptocurrency demand which would result in increasing or decreasing prices, says the report.
We have shown that these results were in part due to the study occurring at a time when cryptocurrency prices were always going up.
Similarly, the authors of the study found that while volume of tweets regarding crypto is a good indicator, sentiment is not.
Twitter sentiment with respect to cryptocurrencies tend to be positive regardless of future price changes, says the report.
People who tweet about cryptocurrencies even when their prices drop have an interest in them beyond investment opportunity making the tweets biased towards positive.
How the Study Was Conducted
The study looked at over 30 million English language Twitter posts that referenced cryptocurrencies in the hashtags. Specifically, it looked at Bitcoin and Ethereum, two of the oldest and most popular cryptocurrencies. Researchers chose Twitter because more people use Twitter as a news source than other social media sites like Facebook.
Many people in North America, Europe and parts of Asia-Pacific dislike the volatility of cryptocurrencies compared to local fiat currencies like the dollar or euro. However, the authors of this study used that aspect of crypto to their advantage. That the price of crypto changed almost as steadily as the volume of posts made correlations between the two more convincing.
The researchers also used Google trends to determine how the volume of searches for crypto correlated with the value of crypto.
As mentioned above, the study found that the sentiment in tweets about crypto was not helpful in forecasting crypto costs. That sentiment could reflect prices was found by earlier studies when prices were going up and sentiment was positive. The current study has found that sentiment remains positive in the crypto community regardless of the price.
What the study did find is that the volume of tweets referencing crypto did go up when the price was rising or about to rise. Essentially, crypto holders don’t talk negatively about crypto when the price is falling or about to fall. However, they do talk about it less often.
Similarly, the researchers found that the volume of searches for crypto rise when prices are rising or about to rise. While the study didn’t suggest this conclusion, it could be that increased discussion of crypto on social media encourages non-crypto holders to learn more about crypto. Some of the people making these searches could become new adopters.
The researchers used advanced software programs in order to collect and interpret vast amounts of data. That doesn’t mean that the average individual can’t benefit from the results of this survey. These days, most of us are on social media. So the next time that you are scrolling through your feed, keep one eye on the amount of crypto content you see and one eye on the price of crypto.