Social media affects our daily lives. Social media’s main purpose is to allow users to connect with one another, hoping that content becomes viral and receives millions of hits the world over. Using Instagram, Reddit, or Facebook means that users talk and news travels. It is also believed that if something is not trending on social media, then it simply is not happening. People know about cryptocurrency through its spread on social media and therefore, social media plays
such a large role in the success and value of cryptocurrency.
People are interested in buying and holding bitcoin, which is currently the most popular and valuable cryptocurrencies. One can get any information on it via any social media channels. Facebook, Twitter, and especially Reddit have helped launch bitcoin into the mainstream. Even Facebook has been considering launching its own cryptocurrency.
However, as social media can help popularize cryptocurrency, it can also contribute to market price fluctuation. For instance, when Tether, a digital currency system, was hacked last year for over $30 million in tokens, bitcoin and Ethereum dropped in value, the former by 5.4 percent.
Dogecoin surged by 29 percent at the start of April, touching its highest value since mid-February. This happened after Tesla and SpaceX CEO Elon Musk tweeted that his space exploration company will put a “literal” version of the meme cryptocurrency on the moon.
This is part of social media’s role in the future of the global adoption of cryptocurrency. That influence may work inversely too; If mainstream acceptance is achieved, this could result in another generation of social media networks.
A look back
To promote Bitcoin at its start, Nakamoto built an email list of 2,000 subscribers and became active on forums like Bitcoin Talk. The first ever bitcoin transaction happened in 2010 via Bitcoin Talk, when one user bought 2 pizzas for 10,000 bitcoins.
The value of these Bitcoins now is approx. Rs 47,13,33,19,020!
One of the biggest problems with cryptocurrency is that there is a high level of ambiguity in the sector and that blockchain and cryptocurrency are not the easiest concepts to grasp. Thus, various platforms are using social media to educate potential users as well as market themselves. Moreover, Cryptocurrency platforms also use social media to create communities consisting of their loyal, new and potential users. Such communities are mainly active on Reddit, Telegram and Twitter which help keep their markets informed and connected. Similarly, when Binance announced the Collect & Win Promo for International Womens’ Month with rewards worth $50,000, the cryptocurrency’s price rose by 47 dollars to $422.46 in 24 hours as news of this feature spread.
It is also very popular for cryptocurrency platforms to use blogging platforms like Medium, where articles can be “tagged” so that they show up for people interested in the topic.—This is great for getting the brand in the open and building a following. Medium articles are then cross promoted on the crypto’s social channels to build engagement by sharing relevant, informative content that their users are highly interested in. This further drives more traffic back to the Medium article, in turn increasing the rate at which Medium shows it in the feeds of people following the tags the article uses, such as “cryptocurrency” or “blockchain.”
How does social media influence cryptocurrency?
In Economics, high demand increases prices. In this way, the price of cryptocurrencies is affected each time there’s hype in the media. Prices can rise with positive hype and plummet with negative attention. Nearly 58.11% of the world population use social media, so it is clear how integral social media is in determining the demand/price of Bitcoin and other currencies.
From both the graphs we can see a high correlation between social sentiment and the price of the coin. It is interesting to analyze these coins together since on one hand Bitcoin is the highest valued coin, while Dogecoin is a cryptocurrency born from social media. Despite the vast difference in popularity, market cap and price of both these coins the effect of rsocial sentiment on price is similar.
In case of DogeCoin on 03 Jan 2021, as the social sentiment for the coin is seen to sharply increase ($0.012 from $0.005 on 31 December 2021), so is the price. Similarly, three simultaneous steep peaks in social sentiment are seen on 29 Jan 2021, 04 Feb 2021 and 08 Feb 2021 respectively -gg resulting in a continuous rise.DogeCoin’s highest on-record price to $0.082 was on 8 Feb 2021. Since then, as the social sentiment of DogeCoin has cooled down, and sohas the extreme fluctuations in its price. Dogecoin is now trading between $0.04 and $0.07.
Looking at the graph for Bitcoin, Bitcoin users are more mature when reacting to social sentiment as they are seen to not react instantaneously to high sentiments. This is reflected by the gradual rise in price rather than an instantaneous spike. This may also be due to the high price of Bitcoin and hence the inability of many users to take advantage of the sentiment. This theory is further supported by the five social sentiment peaks on 26 Jan 2021, 29 Jan 2021, 4 Feb 2021, 8 Feb 2021 and 19 Feb 2021, leading to a gradual price increase to $57,539.94 as on 22 Feb 2021, rather than an instantaneous rise. Since this peak, large fluctuations are seen to reduce both price and social sentiment of Bitcoin and price is seen to fluctuate between $43,499.81 and $62,935.79.
Decentralized currencies started in 2009; however, very few were aware since the potential of social media was unexplored. From an email list with an audience of 2,000 for Bitcoin – awareness of cryptocurrency has increased manifolds. Cryptocurrency value has been dramatically shaped by the influence of social media. Popular publications, industry influencers, and the currencies themselves play a major role in the online hype.