Predicting the crypto markets does not have to be a hard science necessarily. New research shows a simple strategy of tracking sentiment on social media, such as Twitter, about certain tokens and projects could have proven a profitable venture for traders.
But as always: It works until it doesn’t.
Predicting DeFi token movements
According to a report by decentralized application tracking firm DappRadar, social media can be a “powerful tool” for predicting token price movements, especially as the DeFi space remains heavily driven by retail hype.
The firm used a proprietary method to map DeFi token prices against those of Bitcoin, alongside weighting them with social volumes, Twitter follower changes, and active dApp wallets.
In the case of decentralized lending provider Aave (LEND), Dappradar ran regression analytics using the four metrics. Its findings? A massive 75.9% of LEND price fluctuation was majorly impacted by the two metrics — Twitter followers and Aave active wallets.
The firm found a similar result on stablecoin lender Curve, whose CRV token nosedived recently by over 84% compared to its all-time high. It currently hovers at $2, as per CryptoSlate’s price tracking page.
The firm said, “Similar to Aave, we can observe the same trends of correlation and regression analysis in Curve on the provided metrics. All four metrics have a positive correlation to CRV price.”
It added Curve’s Twitter follower changes and active wallets showed the strongest correlation of 86.4% and 84.7% respectively with each other. The firm further noted:
“While running regression analysis for the Twitter followers and Active wallets, the results were exceptional, indicating that 80% of CRV price is majorly impacted by these two metrics.”
Meanwhile, MKR, the governance token of MakerDAO, was impacted the more by Bitcoin price and Twitter follower change, as opposed to the rise in active wallets having an impact on MKR prices.
Do Twitter followers affect price? Yes.
In conclusion, the firm said that the narrative Bitcoin prices affecting altcoin prices continue to hold true. However, active wallets and the increase in Twitter users serve a better correlation for the prices of some DeFi altcoins such as LEND and CRV.
However, the firm did point out some limitations that existed in the calculations, such as the tests being conducted on only three DeFi tokens and that social media sentiments were taken only from Twitter, with sites like Reddit not included.
Still, it’s alpha for those who dare.
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