Bitcoin crashed today, erasing gains from the Christmas rally. Here’s how this may have been announced by social media sentiment.
Social Media Users Got Too Excited During Latest Bitcoin Rally
On Christmas Day, Bitcoin almost touched the $100,000 mark, but over the past day, the coin saw a sharp reversal in trend as its price crashed towards the $95,000 level.
As with any other price drop, several factors necessarily contribute to this trend. One of them could potentially be the sentiment shared by traders on social media.
When BTC rallied yesterday, analytics firm Santiment had shared a chart revealing social media reaction to the run. The indicator cited by the analysis company was “social dominance”.
Social Dominance keeps track of the percentage of total social media discussions related to the top 100 cryptocurrencies occupied by a given term or topic.
Santiment used this metric to gauge sentiment across major social media platforms by applying Bitcoin and price target terms. The price targets in question are $90,000, $100,000 and $110,000.
In the context of the recent rally, investors announcing a target of $90,000 would naturally be bearish on BTC. Similarly, posts containing $100,000 would reflect neutral sentiment, and those containing $110,000 would correspond to bullish optimism.
Now here is a chart that shows the Bitcoin social dominance trend for these terms over the past month:
Looks like only the metric related to one of the targets has spiked recently | Source: Santiment on X
As seen in the chart above, Bitcoin’s social dominance for the $110,000 target increased during the latest rally, implying that social media users were quite optimistic about the run and expected that it continues until a new all-time high (ATH).
Historically, the price of cryptocurrency has tended to move in a manner opposite to public expectations. This likelihood of a contrary move occurring has also only increased as traders have become more certain of a direction.
So while some optimism isn’t bad for a recovery, too much hype can make a reversal more likely. From the chart, it can be seen that the social dominance level also increased twice earlier in the month, and on both occasions BTC ended up suffering a price drop.
Given past precedent, it’s no surprise to see that the latest price rally also ended in failure after traders on social media got too excited about the direction the rise might take .
BTC Price
At the time of writing, Bitcoin is trading around $96,100, down almost 4% from last week.
The price of the coin appears to have sharply gone down over the past day | Source: BTCUSDT on TradingView
Featured image of Dall-E, Santiment.net, chart from TradingView.com
