Predicting the crypto markets doesn’t have to be a brutal science. New research shows that the simple strategy of tracking sentiment on social media like Twitter via specific tokens and projects has proven to be a profitable endeavor for traders.
But as always: it works until it stops working.
Lucrative prediction of DeFi token movements
According to a report by Dapp tracking company DappRadar, social media can be a „powerful tool“ for predicting symbolic price movements, especially as the DeFi space is still heavily driven by the retail investor hype.
The company used a proprietary method to match DeFi token prices to Bitcoin’s and weighted them with social volumes, changes in Twitter followers, and active dApp wallets.
In the case of the decentralized loan provider Aave (LEND), Dappradar performed a regression analysis based on the four metrics. The result? A massive 75.9% fluctuation in the price of the LEND was heavily influenced by the two metrics – Twitter followers and active wallets from Aave.
The company found a similar result with the stablecoin Lender Curve, whose CRV token recently plummeted by over 84% from its all-time high. According to a price tracking site, it’s currently hovering around $ 2.
The company for this:
“Similar to Aave, we can observe the same trends in correlation and regression analysis with Curve using the metrics provided. All four metrics show a positive correlation to the CRV price. “
The changes in the Twitter followers of Curve and the active wallets with 86.4% and 84.7% respectively would show the strongest correlation with one another. The company further states:
„When we ran the regression analysis on the Twitter followers and active wallets, the results were exceptionally good, suggesting that 80% of the CRV price is heavily influenced by these two metrics.“
Meanwhile, MKR, MakerDAO’s governance token, was all the more impacted by the Bitcoin price and the change in Twitter followers, while the surge in active wallets affected MKR prices.
Do Twitter Followers Influence the Price? Yes.
In conclusion, the company states that the bitcoin prices mentioned, which affect the altcoin prices, are still valid. However, active wallets and the increase in Twitter users ensure a better correlation in the prices of some DeFi coins such as LEND and CRV.
However, the company points out some limitations in the calculations, such as the fact that the tests were only conducted with three DeFi tokens and that social media sentiments were only taken from Twitter – ignoring sites like Reddit.
It’s still alpha – for those who dare.