In traditional asset classes, such as equities and fixed income, market movements are a highly studied phenomenon. Investors and traders rely on a suite of analytical methods to try and make predictions about where they believe the market is heading, then act accordingly. These are primarily technical analysis – statistical analysis that attempts to forecast future movements based on past market data, and fundamental analysis – assessing intrinsic value based on financial and economic indicators.
Since the birth of cryptocurrencies, and even more so since their popularity has boomed, traders have been lured in by the incredible volatility and insane returns. YouTube, Twitter, Reddit, 4Chan and pretty much every other social platform have been flooded with forecasts and predictions about where people think the market is heading. However, once you are exposed to this rapidly emerging asset class for a sustained period, you will begin to realize that no one really knows what is going to happen.
The Problem with Technical Analysis in Crypto
In the right market with the right implementation, technical analysis can be a very successful trading method. It works best in stable and predictable markets, like forex and stocks, and is often combined with algorithmic trading programs that execute without emotion or bias. This is the exact opposite of the crypto market.
Traditional markets do not plummet by 50%+ in matter of days because of what is essentially fake or inaccurate news. Neither are they subject to rife market manipulation by whales – investors who control a significant portion of the market. Nor are they susceptible to recurring hacks that have crashed the market by a record of 94% (cue 2011 Mt. Gox hack). No amount of statistical analysis can predict these events.
Another angle, albeit controversial, is that technical analysis is a self-fulfilling prophecy, whereby high volumes of traders all trained to read the markets in the same way predict similar outcomes and so push prices in that direction. To contrast, the crypto markets are awash with inexperienced retail traders who base their decisions on ‘FUD’ and ‘FOMO’ rather than rationale. So, if technical analysis does have a self-fulfilling prophecy element to it, it is less applicable here.
What are the Alternatives?
Cryptocurrencies are a rapidly emerging asset class born out of cypherpunk ideologies. Labelled by some as ‘The Internet of Money’, it seems fitting that the generation brought up on the internet would be the demographic to adopt crypto first. This notion was confirmed by a recent survey by Blockchain Capital, which found that millennials (aged 18-35) dominate the space by a significant margin.
Therefore, in order to find market indicators other than traditional metrics like price and trade volume, it is necessary to examine how millennials communicate market sentiment. Now, new research by analytical intelligence firm Pulsar suggests metrics like social media activity and search traffic can serve as strong predictors of price rises.
‘The Mainstream Rise of Cryptocurrency Through the Lens of Social Data’
Pulsar believe that figures like price data, trading volumes, market cap and hash rates are both already well-documented and do not provide much indication of mass awareness or adoption. Their approach was to employ social listening techniques and analyze search traffic to assess how the mainstream view crypto, as well as to look for patterns that are indicative of price changes.
The results were quite astounding. Contrary to popular belief, cryptocurrency conversation online was not found to be reactionary i.e. occurring after major price action, rather it predicated it! The research showed that following a spike in social buzz, search traffic increased the next day, with Bitcoin price rising quite significantly 2 – 3 days after.
So if spikes search traffic and crypto social buzz serve not only as predictors, but key drivers of major cryptocurrency price growth, how can we monitor these metrics to our advantage? What tools are there out there for assessing these kind of things? Below we have rounded up some of the best existing tools for tracking crypto social buzz, as well as some new tools developed by the community.
- One of the most widely used tools for assessing search volumes.
- Super easy to use, reliable and accurate data.
- Probably the most advanced cryptocurrency social analytics tool out there.
- Detailed social charts to analyze individual coin total social volume, segregate between sources including Reddit, Twitter & BitcoinTalk, or view sentiment – positive and negative post volumes. Also shows correlation with price.
- View 1 day, 7 day, 1 month or 3 month time frame.
- Table view useful for comparing all coins and sorting in ascending order for different metrics e.g. social volume change 24h, sentiment change 24h. Also has ICO and exchange analysis.
- Great tool for analyzing different cryptocurrencies social popularity on r/cryptocurrency, r/cryptomarkets and 4chan /biz.
- Has 6 hour, 24 hour and 7 day view, with metrics for each coin including its % of total gossip, gossip % change and price changes.
- Assess total crypto Reddit comments, posts or subscribers for individual cryptos. Side wide, not limited to specific subs.
- Filter by top 10, top 10 – 20 or top 20 – 30, BTC 1 month, BTC 24 hour or ETH 1 month.
- Great community ICO analysis site.
- ICO Telegram statistics tool useful to assess ICO hype, view top 30 from past 24 hours, 7 days or all time.
- A similar table format to Solume for comparing ICO social metrics, but includes a few more.
- Sort by Telegram users, Reddit subscribers, Twitter followers, YouTube views or YouTube subscribers.