There are some uncomfortable truths about trading crypto, which many people refuse to acknowledge. Thierry Gilgen, CEO of MachinaTrader, takes a deeper look into how social media channels dominate information about cryptocurrencies.
The market is not purely mathematics. Raw human emotions play a big role, and that includes you potentially getting played. It is easy to be carried away while trading and make an emotional-based decision that results in you being wrecked. That’s not the only unpleasant truth about trading. Your exchange might be using you. Some platforms today built their architecture in such a way as to monopolize the data they get by providing their services.
In the crypto space, for instance, there are delays between the moment a provider receives data, and the moment its customers receive that same data. Such platforms take customer data for free, use it, and sell it. They don’t give back the knowledge their customers created in concert. The platforms keep it for themselves and use it to influence those very same users. They devalue, use, and sell their customers, not letting them get back what they put into those platforms.
Customers need platforms that don’t exploit them
They really do. And platforms can be incentivized to pursue such an egalitarianism, because they need the group’s knowledge. They’re nothing without their users they need in order to predict markets. I believe that over the course of the next two years or so, the exchange market will undergo a massive transformation. Although there are dozens of crypto exchanges today, there will be fewer than ten, in the not so distant future.
If you look at trader behavior, you’ll see that they have no emotional binding to a product. If tomorrow they see something that suggests more profit - and it provides a clear fact-based reason why it can propagate such a thing - they will at least give it a try. As long as it works, they will move on from their previous product of choice.
Different data is important
Keeping up to date with such a swiftly evolving market is paramount for trading. The day of a successful trader starts as soon as they open their eyes and ends when they close them to go to sleep. Beyond controlling your emotions and anticipating which exchange platforms will persist, there are also the fundamentals of trading to understand.
I am often asked which indicators traders should observe, and I always answer the same: don’t only look at one or two indicators, but rather at as many as possible in aggregate. Consider all types of data across different time horizons.
With that said, keeping an eye on social media can oftentimes give you a good sense of where the market is headed. For instance, you might keep an eye on how many times and in what context a particular asset - for example, Bitcoin (BTC) - has been mentioned on social media.
Listen to social media
Admittedly, it is not easy to track everything that happens on social media. But if you get the real grasp of what’s really happening there by aggregating indicators of multiple projects, you will see that social media has a massive effect on crypto prices - even more than a lot of other indicators. It’s a highly reliable indicator. However, this won’t last forever. The larger the market, the less the impact social media has on prices. Currently, social media is one of the most interesting indicators.
People ask me what kind of bot they should create. I think, the simplest, most profitable bots would be the best option, listen to social media. If you aggregate this information, you can see how many times a specific cryptocurrency is mentioned within a certain timeframe such as one hour, 24 hours, etc. Look into how markets behave based on social media indicators, and you’ll apparently improve the accuracy of your bets. If you stick to the top five cryptocurrencies mentioned within the past hour, you can uncover profitable niches.
We see a lot of data analytics projects suggesting that they can exploit this, and they can indeed predict where prices will go thanks to social media indicators. In other words, you can easily profit from using algorithms listening to mentions and cataloguing aggregate volumes across social media, including Telegram.
Tracking social media metrics
Social media mentions are such an important metric that audience intelligence company Pulsar examined mainstream adoption of crypto. It measured neither trade volume, nor market capitalizations, but social media mentions. The company concluded that social media is a strong indicator of what’s to come in crypto: "In nearly every case, a rise of 10% or more in social cryptocurrency buzz volume from one day to the next ‘predicts’ a rise of at least 5% in the price of bitcoin within three days time."
On social media, people seem to follow "brand names" more than they follow terms such as "cryptocurrencies" and "digital assets". Wherein the most popular would be "bitcoin," followed by "ethereum" and "ripple". Social media channels dominate information about cryptocurrencies. Facebook groups, crypto Twitter, and Reddit have helped those interested in cryptocurrencies learn about the technology. Other than social media, Google Trends is a powerful analytics tool when it comes to the fundamentals of the market. You can see how many people are thinking about bitcoin, ethereum or ripple at any given time.
Many traders spend time on social media, pruning their Twitter, Facebook, and LinkedIn feeds. In particular, Twitter and Reddit allow users to customize their crypto information. If you’re careful about what you follow, you can gain a lot of valuable information from these sources such as price analyses and news. By following mentions, you can determine if people are bullish or bearish and adjust your positions accordingly.
