Research has shown that “the sentiment of a group of Twitter key influencers has significant predictive power to [stock] market movement.”  Causality sought to determine whether the same was true of the cryptocurrency market.  That is to say, would monitoring the sentiment of crypto key influencers’ tweets enable us to predict crypto market movements?

In our previous blog we explained the methodology we followed to create our list of crypto influencer twitter accounts.  In this blog we will go a little deeper and investigate the relationship between the sentiment of key influencers’ tweets and cryptocurrency price movements.

Preparing the Twitter Data

The first step in this process was performing the necessary data preparation.  We started by calculating daily and hourly aggregates of the tweets made by our elite crypto influencers for each of the top 20 coins (as measured by marketcap).  Each aggregate captures metrics such as the total volume of posts, positive post volume, negative post volume, neutral post volume and average sentiment score. We then did this same aggregation across all crypto related tweets.  Finally, we tested the correlation of both crypto sentiment data sets against the market price for each of those top 20 coins.

Example of Litecoin’s Bull Run

The results were enlightening.  As an example, let’s look at Litecoin’s bull run since December last year.  During this 3-month period LTC has experienced some big spikes in price.  Could social media have forewarned us?

Litecoin Price & Volume 3 mths

Statistical Relationships in Twitter Data

Let’s start by looking at the statistical relationship between the datasets.  The correlation coefficient between the volume of positive tweets from all users and Litecoin’s price in USD over that 3-month period is 0.827.  That’s a pretty significant correlation factor.  And this relationship is reasonably visible when charted (the green line is LTC/USD’s daily price, the blue line is the indexed volume of positive Litecoin related posts by all users)

Positive Sentiment LTC/USD

Further Insights

Well what about the relationship between the volume of positive tweets from our crypto influencers and Litecoin’s price in USD over that period?  The correlation coefficient between those datasets is only 0.14 – which is pretty disappointing.  Statistically, that’s almost completely uncorrelated.  However, when we charted this relationship, we noticed something else.  (the green line is LTC/USD’s daily price, the blue line is the indexed volume of positive Litecoin related posts by all users, and the orange line is the indexed volume of positive Litecoin posts by our high influencers)

Litecoin-USD Comparison chart with Sentiment overlayed

More Interesting Observations

As can be seen in the chart, although the volume of positive posts by the high influencers doesn’t track price as closely as the positive post volume across all users, there are big spikes in the volume of positive posts by influencers prior to every major spike in price during this three-month period.  And these spikes in influencer positive posts appear to always occur before any spike in the volume of positive posts by all users and, even more interestingly, before any large movement in the price of Litecoin.

Learnings from our Analysis

So, what learnings can we take away from this twitter analysis?

  • Firstly, there was a clear and strong correlation between the volume of positive tweets from all users and the price of Litecoin over this period. However, it’s possible that some of this correlation is due to the good news tweets that are posted immediately after a rise in price.  To test this, and better understand the causality relationship between these datasets, we need to look at the data on a shorter timeframe – more on that in an upcoming blog.
  • Secondly, despite the correlation between the volume of positive tweets by high influencers and price being low, the data suggests that trading on the back of significant spikes in the volume of positive tweets about Litecoin by high influencer crypto twitter accounts during the first few months of 2019 would have been a very profitable strategy.

Which High Influencers to Follow

So which high influencers should you have been following to pick up on those early warning signals?  Well a couple of accounts are reasonably obvious: Charlie Lee (LTC) the founder of Litecoin, and the Litecoin Foundation accounts for starters.  You would also have wanted to be following the news feed accounts that seemed to consistently release Litecoin related posts ahead of most throughout this period: Bitcoinagile and ForbesCrypto. And finally, you will would have done well to listen to this mix of well followed crypto enthusiasts, traders and commentators as they all appeared one step ahead of the market with their LTC posts and observations:

If you had been following these accounts, monitoring their posts on a 24 X 7 basis.  Listening for any mention of LTC.  And, processing whether that information was positive or negative news for the coin.  Then – you would have been able to react ahead of the rest of the market.

How to Save Time and Effort

LTC Cryptosentiment Chart Positive Volume 30 percent

Of course, if that all sounds like too much time & effort, you could always take advantage of the fact that Causality’s Crypto Sentiment Alert application could do this for you for all of the major cryptocurrencies.

Also published on Medium.