Bitcoin crashed today, erasing gains from the Christmas rally. Here’s how this might have been shaped by social media sentiment.
Social Media Users Gained Big During the Recent Bitcoin Rally
On Christmas Day, Bitcoin came close to touching the $100,000 mark, but the previous day, the coin saw a sharp reversal of trend as its price dropped to the $95,000 level.
As with any other price drop, there are bound to be several factors contributing to this trend. One of these may be the sentiments traders share on social media.
When BTC rallied yesterday, analytics firm Santiment shared a chart revealing how social media was reacting to the run. The index cited by the analytics company was “Social Dominance.”
Social Dominance tracks the percentage of total social media conversations related to 100 cryptocurrencies that are used by a specific term or topic.
Santiment used this metric to gauge sentiment on major social media platforms around Bitcoin and related price-targets. Price targets are $90,000, $100,000, and $110,000.
In the context of the recent rally, investors posting around 90,000 of the target would naturally be bearish on BTC. Similarly, posts containing $100,000 will indicate a neutral sentiment, and those with $110,000 will correspond to a bullish outlook.
Now, here is a chart showing the trend in Bitcoin 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 seen in the graph above, the Bitcoin Social Dominance target of $110,000 increased during the recent session, which means that social media users were bullish about the run and it was expected to continue until a new all-time high (ATH).
Historically, the price of cryptocurrency has tended to go against the grain of the crowd’s expectations. This possibility of the opposite happening is also greatly increased when the traders are sure of where they are going.
So, while some confidence may not be bad in a circle, too much hype can make conversions possible. From the chart, it is clear that the Social Dominance rate also increased twice at the beginning of the month and on both occasions, BTC ended up suffering a price drop.
Given the past, it is not surprising to see that the recent price rally also ended in failure after traders on social media got too excited about where it could lead.
BTC price
At the time of writing, Bitcoin is trading around $96,100, down about 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 from Dall-E, Santiment.net, chart from TradingView.com
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