The crypto market is moved by its community: new coins are mined by users, transactions are processed by users, and exchanges are created by users.
People’s behavior inside projects is tied in with every aspect of crypto – even price. That’s why measuring social engagement is important if you’re about to trade or invest in a project.
Social media and price
The Internet allows us to communicate with people instantly, wherever they are in the world. With social media at our fingertips 24/7 most of us turn to apps for news and to share updates.
Monitoring social media engagement with coins and projects is an important part of working out market sentiment. If the community wants to support the initiative, they interact with a project’s social media presence and buy assets. This means there’s often correlation between social engagement and cryptocurrency price:
According to the LunarCRUSH tool, the correlation between an asset’s price and its social media interactions oscillates between 40 and 100 for BTC, ETH, and DOT. This means that at times social engagement has a strong influence on price, while at others its influence is negligible.
While determining social engagement is no silver bullet when it comes to price predictions, it is still a useful metric – investors can measure social engagement alongside other indicators to sure-up their analysis.
The Elon Musk Effect
Occasionally, a buzz of interest on social media tells you everything you need to know. Do you remember what happened to Bitcoin’s price when Elon Musk put in his Twitter bio #bitcoin? It shot up. This is a powerful example of social media affecting the price of cryptocurrencies and shows us the importance of social engagement as a price predictor.
When Elon’s twitter bio changed to read #Bitcoin on January 29th it caused a surge in social engagement as people began speculating about what the cryptic comment meant. The price of Bitcoin increased, indicated by the long tail on the green candlestick in the graph below, and the correlation rank between price and social engagement hit 100.
In the following days, before Tesla purchased $1.5 billion worth of BTC on February 8th, the correlation rank decreases at 78 but the price continued to climb.
What is the engagement rate indicator?
You can work out the ‘engagement rate’ of a project yourself by calculating the ratio between current interactions and the total scope for interaction. This measure tells you how active people following the project are.
Here’s an example. Imagine that ACCOINTING.com had 100k followers across our different social media apps, where we counted 5,000 retweets, 10,000 favourites, 12,000 comments, and 20,000 likes last week. That means we have an engagement rate of:
Interactions / followers * 100% = (5 000 + 10 000 + 12 000 + 20 000)/100 000 * 100% = 47%
In other words, 47% of our maximum scope was active last week. As you can see, this indicator alone only represents how active your community was within a given timeframe and it doesn’t tell you if those interactions were positive or negative.
Instead, it tells you how many people are paying attention to the project. You can alter the calculation to take account of variables like inactive followers or positive comments.
Used correctly, the engagement rate indicator is a powerful tool that allows investors to identify a project’s exposure and surmise market sentiment.
Do not underestimate the power of mass movements on social media: otherwise you might end up like those fellas who almost went broke because a subreddit decided to buy GameStop’s stocks…