Social media platforms have long been seen as a “signal” generator for traders and investors of the crypto space. Due to the relatively small size of Bitcoin ($BTC) and other coins (in terms of market cap, compared to many other stocks or commodities like gold), public opinion can quickly and significantly move crypto markets. But things are going way too far.
Imagine if a few decades ago, you would have told one of the richest people in the world they can control the price of an asset, and make it rise and fall drastically, by merely writing a few words. Their eyes would have flickered and small, green, dollar signs would have appeared in front of each pupil. Well guess what — that’s kind of what’s happening now.
Elon Musk, the billionaire behind Tesla and SpaceX, has the power. In the past few months, cryptocurrencies like Dogecoin and Bitcoin have fluctuated wildly based on Musk’s tweets. While the tweets may have not been posted for his own financial gain (and in truth, Musk doesn’t really need to tamper with the market, at a net worth of some $160 billion), they did send the crypto market on a wild rollercoaster.
Sometimes, the tweets were semi-relevant to the crypto market, like when Tesla stopped taking Bitcoin (after previously bragging that it does accept Bitcoin), or that time SpaceX launched a Dogecoin-funded satellite into orbit. But other times, it’s just plain silly — like when he posted a meme about breaking up with Bitcoin.
Dogecoin, essentially a meme cryptocurrency that somehow picked up a lot of popularity, was at one point 1,400% up compared to the start of 2021. Now, after a peak value right before Elon Musk hosted Saturday Night Live (SNL), the coin dropped by 75%, after the show failed to live up to the hype.
While Musk is the main exponent of the effect social media can have on cryptocurrency markets, he’s far from the only one.
Crypto and social media go back a long time
Crypto and online discussion boards go back as far as Bitcoin’s creation. Shortly after it was brought to the world, Bitcoin creator Satoshi Nakamoto founded the popular forum BitcoinTalk, where most crypto-related discussions took place.
Shortly after Satoshi chose to disappear forever in 2010, we saw a parallel between an increase in online mentions of Bitcoin and its growth and price. The more people talked about it, the more it seemed to be worth. The platforms that stood out in terms of community building and valuable information was Reddit and Twitter, which are also some of the most bitcoin-friendly social media platforms.
Later, Discord and Telegram caught up to the trend as well, since privacy-oriented discussions and closed groups started to increase in popularity. These platforms of course experienced quite a bit of volatility from users after their use in ICO scams deemed them less trusted as information sources.
For crypto traders, keeping an eye on social media became the norm — a way to track the overall market sentiment, but also anticipate scenarios based on Musk-type interventions and try to anticipate the ebb and flow of prices. When you see that the public starts to feel overwhelmingly positive about Bitcoin (to the points that you see Twitter accounts adding laser eyes to their profile pictures) it may be time to sell. When the same audience starts bashing Bitcoin, writing it off as dead, it might be time to buy bitcoin.
Of course, actually analyzing social media sentiment is not easy. You can scroll through Twitter or Reddit, but you just won’t have enough time for it. You can also harvest data and try to analyze it in bulk, but that may miss out trends. You can also look at all the things niche-related influencers are talking about and try to determine how the public will act based on this information, or even use specialized tools to aid your quest.
This is not what was promised
Bitcoin, and cryptocurrency in general, promised to change the world, but it kind of hasn’t. It’s made some people some money, it’s cost others some money, but the impact on society has been negligible. When you take into account the fact that mining and trading cryptocurrency produces emissions comparable to a medium country, the issue becomes even more thorny
Part of the problem stems from the fact that we’re not really sure how much Bitcoin (or any cryptocurrency really) should be worth. As long as the price runs on emotions, memes, and influencer whims, cryptocurrency will continue to fluctuate wildly and trust will dwindle due to this volatility.
In truth, the same can be said about stocks. The market isn’t perfectly rational and oftentimes, it’s anything but rational — we’ve seen this happen time and time again. But crypto is a relatively new happening, and no one is really sure just how high or low it will go.
In an ideal world, people like Musk would lose their power, and cryptocurrency, freed from such nefarious influences, would drift towards a realistic value. People would trust it more and use it more widely; it would become incorporated in humanitarian projects, where its decentralized nature can work best, and act as a viable alternative to existing currency. Alas, we don’t live in an ideal world, and who knows what Musk will tweet next?