Effects of Social Sentiment on Bitcoin Price

Dang Quan Vuong is a trader and market analyst at King Stock Capital Management.

Potential new investors who have recently joined the Bitcoin network have expressed social interest in the asset. Whether you’re selling or buying bitcoin, your actions inherently impact whale behavior. In this article, we will focus on how social sentiment affects whale behavior and how it relates to price volatility.

Looking at social volume (the total number of pieces of content that mention Bitcoin-related terms at least once, especially on Reddit, Twitter, and Telegram), we can see that social volume and bitcoin price have a positive correlation. So what exactly is the justification for this phenomenon?

Bitcoin price is closely associated with social volume. (The source)

Social sentiment is often correlated to the price of bitcoin and can have a snowball effect on price movements, both up and down.

AI social volume is tied to the price of bitcoin. (The source)

Social sentiment is often correlated to the price of bitcoin and can have a snowball effect on price movements, both up and down.

Active Telegram users are also correlated to the bitcoin price. (The source)

As a result, data from Google Trend suggests that the increase in social volume has piqued public curiosity and prompted them to conduct their own bitcoin searches. This shows that the amount of mentions and references to bitcoin on social media is related to the public’s interest in bitcoin and may have influenced the public’s investment decisions.

Social sentiment is often correlated to the price of bitcoin and can have a snowball effect on price movements, both up and down.

Google trends are related to social volume. (The source)

As evidenced by the number of unique active addresses and transaction volume, social sentiment impacts overall network activity. The daily cumulative number of unique addresses, including senders and receivers, is proportional to social volume, although there is significant divergence when bitcoin is near a bottom.

Social sentiment is often correlated to the price of bitcoin and can have a snowball effect on price movements, both up and down.

The relationship between daily active addresses and the price of bitcoin. (The source)

Similarly, as market participants become more active during an uptrend from the bottom, the total amount of bitcoin sent to the network during a given interval often increases, while remaining relatively low. during a downtrend.

Social sentiment is often correlated to the price of bitcoin and can have a snowball effect on price movements, both up and down.

The increase in trading volume indicates that the market is more active. (The source)

Trading volume directly reflects the price of bitcoin due to increased activity, and investors behave more aggressively during bull markets and less aggressively during bear markets.

Social sentiment is often correlated to the price of bitcoin and can have a snowball effect on price movements, both up and down.

Higher volume in uptrend and lower volume in downtrend. (The source)

In social psychology, the snowball effect is a process that begins with a minor state and gradually grows in importance or magnitude. The vivid depiction is when a snowball rolls down a snowy mountainside, collecting additional snow, gaining more weight and momentum until it finally comes to rest. The spread of bitcoin on various social media platforms can have a similar effect as more and more attention is given to it, causing bitcoin to gain public awareness and hence the snowball effect. product. The higher the price of bitcoin rises, the more publicity it receives, again boosting the buying momentum.

A surge in social media content would be a plausible reason for a group of traders and investors impacting the price of bitcoin. They go to buy bitcoin and are confronted with stimulating content from social networks. This would draw more attention to the positive aspects of Bitcoin and make people more aware of it. The euphoria grows as more and more individuals enter the market. More and more people are getting involved due to the heightened attention and the cycle goes on and on.

The market continues to rise until it reaches a critical point where it remains in a balanced state and no longer rises due to a lack of buying momentum. This is because the reduced social interest marks the peak of the upward momentum and the start of a downward trend thereafter.

Whales, as many know, play a pivotal role in market movement as they have the ability to determine the price of bitcoin, so it is important to determine when they enter the market. As shown in the following figures, the total number of whale trades over $100,000 and $1 million increases in the rally and decreases in the decline. The charts reveal that whales are more active during uptrends and less active during downtrends, with the exception of panic selling during the COVID-19 pandemic.

Social sentiment is often correlated to the price of bitcoin and can have a snowball effect on price movements, both up and down.

An increase in whale trades over $100,000 is often a signal of an incipient bull run. (The source)

Social sentiment is often correlated to bitcoin price and can have a snowball effect on price movements, both up and down.

Rising whale trades over $1 million often lead to a rebound. (The source)

In a specific time interval, the ratio of total coins transferred in profit to total coins transferred in loss increases in uptrends and decreases in downtrends. This means that profit increases during a rally until it reaches its peak. Then it goes down until most investors are in the red, at which point the trend reverses.

Social sentiment is often correlated to the price of bitcoin and can have a snowball effect on price movements, both up and down.

The daily trade P/L is almost highest near the top and lowest near the bottom. (The source)

In summary, the premise of the recovery momentum is growing social sentiment as new investors eagerly enter the market. This self-fulfilling prophecy has historically been attributed to accelerating trading volume. When the Bitcoin community thinks the market will rise in an uptrend, more buy orders are placed causing the market to trend up. Meanwhile, the whales are likely to distribute their assets to newcomers before forcing them to sell them at a loss after a period of time. Due to growing public interest, the value of the network rises until there is no more buying momentum, and then bitcoin eventually drops out. This cycle is configured to repeat periodically.

This is a guest post by Dang Quan Vuong. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.