The safe and fully secure peer-to-peer network provided by Blockchain has been visible mainly through the growth of cryptocurrencies across the years. Cryptocurrency is a fully encrypted, digitally generated, and stored, decentralized currency, which uses blockchain technology to secure transaction data.
The main reason behind the growth of cryptocurrencies is public trust. It also gathered pace due to the 2008 financial crisis when the biggest banks needed to be bailed out by the government. While Ether (which is based on the Ethereum Blockchain) and BTC (or Bitcoins) remain the top contenders in the list of popular cryptocurrencies, they have been joined by many others creating the top ten list, namely:
- USD Coin
Even though most of these cryptocurrencies have seen continuous growth through most of their existence, certain events have created a bloodbath in the crypto market. Among these events, multiple social media outcry take up the first place on the podium. Other events, ranging from Tweets to Reddit threads have caused many of these new-age currencies to hit record highs, although most such events saw a course correction and normalization soon after.
Social Media and Cryptocurrency
Social Media plays a big part in our everyday lives today, and most of us get our daily dose of updates from websites like LinkedIn, Facebook, or Reddit. However, discussions around Cryptocurrency or news related to them started from social media websites itself, as the makers or the exchanges tried to educate more and more people. This was required since the technology was not only new but considerably more complex than any other forms of currencies used earlier, such as gold or paper currency.
Fig: Social Media and Cryptocurrency
Cryptocurrency Experts and Trading websites regularly post valuable information related to the latest happenings along with articles that simplify the complexity of the fundamentals. This helps traders, consumers, and miners to obtain new information or polish their basics. It also gives rise to healthy debates around the various coins and increases social media engagement.
For instance, in this report, around 5 million posts and conversations on social media around the end of 2018 were studied to find a correlation between social media buzz and the rise of Cryptocurrency prices on the very next day. In almost every case, a rise of 10% or higher in social media conversations led to a 5% increase in the price of Bitcoin in the following 3 days.
Fig: Social Media Engagement vs Bitcoin Price Fluctuations, Source: https://www.pulsarplatform.com
Social media is also the place where novice traders try to find relevant information and help before getting their hands dirty in crypto-mania. This helps kick start their journey while also providing a forum for discussions on market trends as well as their progress.
The entire crypto community has grown through social media, and even the very first real-world transaction through crypto was conducted through the forum BitcoinTalk. This thread captures the now legendary post that led a software developer Laszlo Hanyecz to buy two Papa John’s pizzas for 10,000 BTC (the same would be worth three hundred forty-five million four hundred forty thousand dollars today on June 9th, 2021).
Multiple reputed companies, CEOs, founders, and other high net worth individuals have also joined these forums thereby increasing their popularity and the buzz around crypto in general. The community that develops on these social media platforms encourages personal growth for these crypto-traders and brings the right kind of people together who can collaborate and use their minds together for a bigger heist.
The Intrinsic Value of Cryptocurrencies
Cryptocurrencies hold no intrinsic values. While some of them started off as usable tokens on certain platforms, most of them have no tangible assets attached to them, and their prices vary based on the trust that users have and their level of acceptance. In theory, if users suddenly stop using a particular cryptocurrency, its value could fall to $0. This is because it is not backed by any bank or government and no one would be making an external effort to recover it.
There are 3 types of participants in any cryptocurrency community that boost its growth. These consist of the:
- Traders or users
Fig: Tweet by Elon Musk in support of Dogecoin.
If there is a fall in new members joining the community or participants move to newer technologies, there’s a high chance of most of these cryptocurrencies losing their entire value. But for most practical purposes, their prices usually hover around a certain point and see steady growth (in normal circumstances). Their prices depend on:
These are the benefits of holding a particular cryptocurrency. This may be a wide acceptance (you can use it at different stores), voting rights in online forums, abilities to purchase digital goods, and more. These incentives usually lead to more individuals buying those coins and increasing the total transaction counts. That in turn would push prices up.
Like any other resource, the gap in demand and supply is what plays a huge role in the prices of cryptocurrencies. Certain coins like Dogecoin can have infinite numbers in existence, and thus have very low prices (less than a dollar), whereas those like Bitcoins can only have a set number of coins in existence. Interestingly, as of 2021, there are around 18.7 million BTC in circulation, which is very close to its maximum value of 21 million. This can be a major reason for its massive price today.
The price of cryptocurrencies depends on what people are willing to pay for it. When a coin gets accepted as a payment mode by more companies and brands, or when banks invest in them, their value increases, and people are willing to pay more for it. The reverse is seen when countries ban the use of Cryptocurrencies or when new legislation limiting their usage is passed.
Since the discussions around all the three factors above usually occur in online forums and chat rooms, social media has a large impact on crypto prices and their acceptance.
The Ups and Downs in Crypto
With the growing buzz around Cryptocurrency and blockchain, major companies like Burger King, Home Depot, Shopify, Twitch, Pizza Hut, and Starbucks have started accepting them. Along with that, large publicly held companies are investing a part of their assets in crypto. This includes Tesla, Mogo– a Canadian Fintech Company, Microstrategy– a business intelligence company that presently owns $3.1 billion worth of bitcoin and Square (owned by Twitter founder Jack Dorsey). Many have also invested heavily in coin mining hardware. But where does social media analytics fit into the picture? Let’s find out.
In its most basic form, data related to cryptocurrency can be found on multiple social media platforms. This can just be mentions of changes in prices, large price drops or gains, expected changes in the recent future, or even upcoming events that may impact the prices of specific coins. This information and data-bits can help individuals make data-backed decisions while they traverse their path through the crypto-maze.
But in the broad scheme of things, certain events, posts, and discussions on social media platforms have been seen to directly impact crypto prices. These can include but are not limited to popular faces and tech-giants creating posts that would increase the hype around cryptocurrencies thus boosting engagements which in turn increase trade volumes.
The part played by social media in the crypto-craze is the largest one. Let’s take a look at some social media posts that had a major impact on cryptocurrencies. In July 2020, a massive surge of almost 638% was seen for Dogecoin, a cryptocurrency made initially as a joke! This was right after a user named jamezg97 uploaded a video encouraging people to buy Dogecoin to raise its prices so that they could get rich together. This was followed by more social media influencers uploading similar videos to increase the hype.
While the rally of Dogecoin was one of the weirdest phenomena even in the world of Cryptocurrency, it did showcase the power of social media in the space.
Recently, Elon Musk, the founder of Tesla and the crypto-messiah who has been able to change crypto market trends with as little as a single tweet had announced the purchase of $1.5 billion worth of BTC through Tesla. Tesla also started accepting BTC for the Tesla vehicles (the decision was recently reversed due to environmental concerns).
Fig: Tweets by Musk on Cryptocurrencies
This event, that occurred on Twitter instantly set Bitcoin on an upwards spiral, and the crypto reached an all-time high of $44,000 for the first time. This was further fuelled by Musk adding #bitcoin to his Twitter bio, thus fuelling the fire and increasing social media engagement. Bitcoin rose further, till it hit $58,000 around when something even crazier happened. He tweeted about the rising prices of Ethereum and Bitcoin and remarked that both were pretty high. This led to an immediate fall in the prices of multiple cryptocurrencies.
Fig: Tweets by Musk on Cryptocurrencies
While at no point can it be said with complete certainty that Musks’ tweets or the Tiktok videos directly set off changes in Crypto prices, a correlation does seem to exist between different social media banters and the fluctuations in the prices.
Social Media Analytics and Data-Backed Decisions
Social Media Analytics has been used as a non-traditional data source, or a new age data source to understand customer sentiments, predict events, or build recommender engines. Correlation between social media conversations and the stock market has also been studied but no certain outcome has yet been derived. When it comes to crypto, most experts would agree on the importance of keeping track of real-time social media data, and getting alerts on events as soon as they occur.
Our web scraping team at PromptCloud can provide a real-time stream of all social media chatter related to cryptocurrency, where certain keywords find mention. This would be a low latency, fully managed, cloud-based service that would be fully maintained and managed by our team. You can give us your exact requirements and we can customize the solution to provide you with a data stream that would enable your crypto-dream.