Social Sentiment is the Largest Driver of Crypto Prices

Having lived through Web 1.0 and now witnessing the evolution of Web 3.0, the one saying the continues to come to mind is: “history doesn’t repeat, but it rhymes”. Web 3.0 companies (especially ones with crypto tokens attached to them) are no different than the public stock prices of Web 1.0 companies that went public at a feverish pace during the .com boom. ICO’s are the IPOs of the late 90’s. Crypto tokens are the equivalent of public equities. Price action is explosive today as it was back then when companies listed shares and volatility is extraordinary. The most important thing that is true today as it was back then, is that the majority of cryptos like their .com public predecessors make no money, have thin business plans, and are likely to go the way of how most .com’s who ultimately failed and were forever regulated to the graveyard of the forgotten and the unknown. And today, just like in the .com boom, the single biggest driver of price was market sentiment. Since there are no fundamentals like revenue, earnings, EBITDA, free cashflow, and other key financial statistics that drive many public companies stock prices today, there is only fear, greed (both emotional and psychological factors) that drive price. The difference today though, is the explosion of social media channels where investors derive their content, share ideas, explore new crypto projects, and take market cues of which cryptocurrencies to buy and sell. These social channels, which are open platforms where information is shared at the speed of light, amplifies market sentiment and is a massive driver of crypto prices and hence volatility. The markets move faster, they react quicker, and therefore make the asset class dramatically riskier for investors (especially those who are new to trading and choose crypto as their asset class of choice). For all these reasons, it is critical for all investors, especially retail investors in crypto to have access to tools that derive crowd-sourced sentiment signals from social channels. The other critical element that is necessary are tools that help new investors gain the ability to get aggregate sentiment in real-time which is impossible without the use of large computer systems, capital, quants, and sophisticated analytics. Now, more than ever, the investor playing field is more uneven than at any time in history while one of the largest investor classes is entering the market for the very first time: Gen-Z and millennials. When you start out as a retail investor, you’ve already lost. You will never be able to compete with institutional investors that can outspend you and have resources that you will never be able to afford. Retail investors need to have the same analytical tools that institutional investors have to have a fighting chance. And the single most important thing that retail investors must have as an arrow in their investing quiver is the ability to trust crypto “influencers” (for lack of a better term) that are so prevalent in this burgeoning space. Trust is the single most important factor for “any” investor. How do you gain trust? On Wall Street, it’s quite simple. You measure the performance of traders. The numbers are black and white. A trader with a consistent track record of good returns over long periods of time through many market cycles keeps their job and can do phenomenally well. If they don’t, then we all know the fate that they face? Why aren’t social media crypto “influencers” held to the same kind of standard? They can and that is the mission that I went on when I built Market Prophit: to level the playing field between Wall Street and Main Street and give retail investors the same tools that institutions have. Our mission is to help educate retail investors and empower them to learn how to make informed investment decisions. Every investor deserves to have a chance to obtain financial freedom, not just those with access to capital and the right channels. Market Prophit aims to do both of those things for the retail investor community. We developed unique technology that objectively scores social media crypto prognosticators allowing retail investors to identify the right accounts to follow based on performance, not popularity which is the exact same way that traders are measured on Wall Street. We also provide retail investors with the one, single and dominant metric that can drive crypto prices: sentiment. Sentiment drives crypto prices and it’s important for retail investors to have the ability to track and see that sentiment in real-time as it is trending in social channels at volumes and at speeds that a human can’t possibly follow without the aid of machines seamlessly and automatically. We have tested our sentiment signals to show that they are predictive of crypto prices. Below is a “simple” strategy that we developed that showcases the predictiveness of our social sentiment signals. It can also be found on the Research section of our website at www.marketprophit.com The strategy is a simple one and hasn’t even been optimized at all but is only for example purposes. But even this simple strategy highlights the predictive power of sentiment. The top 3 graphs represent strategies involving automatically following sentiment signals generated by our algorithms that track social crypto conversations on X. We generate two kinds of sentiment signals which are unique to all other platforms. The first sentiment signal Market Prophit produces are from all crypto prognosticators on X and derives aggregate sentiment from everyone posting crypto tweets and is called CROWD. The second sentiment signal Market Prophit produces is derived from only those X crypto bloggers that get Market Prophit’s proprietary score that measures the accuracy of their crypto calls (this sentiment is called Market Prophit or #SmartMoney sentiment). The graphs in dark green and red are sentiment signals from CROWD and Market Prophit’s respectively and employ a daily trading rebalance of a portfolio of 25 trending cryptos on X on an ongoing basis. The light green line uses the CROWD sentiment signal and is a weekly strategy that rebalances once a week. As you can see, all 3 strategies perform showing that sentiment is a highly accurate predictor of crypto prices. The bottom 4 graphs are the benchmarks in order of smallest to largest losses (S&P500, Nasdaq, Ethereum, and Bitcoin). Notably, the sentiment derived on our platform nailed the FTX price collapse and increased in value at the exact same time as the price of FTT, the native token of FTX, collapsed. There are of course many other strategies one can construct including following the sentiment of a single individual crypto currency to help inform a retail investor what the current mood in the market is towards a crypto. These signals of course aren’t financial advice as it is just data that an investor can use to complement their research into crypto currencies amongst doing other research and doing detailed exploration of a project, its technology, use cases, partnerships, ecosystem, and other factors. Just like in any analysis and research, being as informed as possible is critical when evaluating an asset class. For crypto, sentiment is a key indicator to track, and the goal of our platform is to provide sentiment in social channels in an automated way leveling the playing field for retail investors and providing equal access to everyone.