Bitcoin collapsed today, erasing the gains it made from the Christmas rally. Here’s how social media sentiment may have predicted this.
Social media users have gotten very excited during the recent Bitcoin rally
On Christmas Day, Bitcoin came close to touching the $100,000 mark, but last day, the coin saw a sharp trend reversal as its price collapsed towards the $95,000 level.
As with any other price decline, there are bound to be several factors contributing to this trend. One of these is likely to be the sentiments that traders share on social media.
When BTC rose yesterday, the analytics firm… saint He shared a chart revealing how social media is reacting to the race. The indicator cited by the analytics company was “social dominance.”
Social Dominance tracks the percentage of total social media discussions related to the top 100 cryptocurrencies occupied by a specific term or topic.
Santiment used this metric to measure sentiment on major social media platforms by applying Bitcoin and target price terminology to it. The respective target prices are $90,000, $100,000 and $110,000.
In the context of the recent rally, investors deploying around $90,000 would naturally be a bearish target on BTC. Likewise, posts containing $100,000 will reflect neutral sentiment, and those containing $110,000 will correspond to bullish optimism.
Now, here’s a chart showing the trend in Bitcoin’s social dominance 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 can be seen in the chart above, Bitcoin’s social dominance rose to the $110,000 target during the recent rally, implying that social media users were very optimistic about the range and expected it to continue until a new all-time high (ATH).
Historically, the price of cryptocurrency has tended to move in a manner contrary to public expectations. The probability of an opposite movement has also increased as traders become more confident about the trend.
As such, while some optimism may not be bad for a rally, too much noise can increase the likelihood of a reversal occurring. From the chart, it is clear that the social dominance level also rose twice earlier in the month and on both occasions, Bitcoin ended up suffering a price drop.
Given the past precedence, it is not surprising to see that the recent price rally also ended in failure after traders on social media became too excited about where the rally could lead.
Bitcoin price
At the time of writing, Bitcoin is trading at around $96,100, down about 4% over the past week.
The price of the coin appears to have sharply gone down over the past day | Source: BTCUSDT on TradingView
Featured image from Dall-E, Santiment.net, chart from TradingView.com
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