Data shows that Ethereum-related tweets have a positive impact on the next days’ trading volume but what about the price?
Ether (ETH) price lost more than 40% this week, even hovering around $100 on the day which is now being considered the new Black Thursday in crypto and traditional markets. In recent hours Ether has bounced back slightly to trade in the $120 to $130 range.
Cryptocurrency market weekly overview. Source: Coin360
However, in 2017 Ether and Bitcoin saw a great increase in prices and also in the number of tweets mentioning Ethereum. The number of tweets reaching an average of 12,622 daily tweets during that year. However, in 2018, a year in which Ether’s produced a -78.6% return, the average number of tweets increased to 15,029 which was the highest across the years.
Meanwhile, these yearly averages have decreased substantially in 2019 to 4,621 daily tweets.
Number of daily tweets from January 2017- March 2020
Tweets and their impact on Ether volume in 2017
When analyzing the relationship between Ether’s daily volume and the daily number of tweets mentioning Ethereum, a significant relationship is found throughout 2017. When the number of tweets increased by 1%, Ether’s volume would increase by 1.612% during the same day.
A similar positive relationship is found when trying to predict future trading volume using daily tweets as the predictor. When the number of tweets increased by 1%, Ether’s trading volume would increase by 1.584% the next day.
Number of daily tweets from January 2017-December 2017 (inclusive)
Volume trend holds through 2018 but turns negative in 2019
In 2018, the relationship between tweets mentioning Ethereum and transaction volume was positive but in a smaller magnitude than the timeframe observed in 2017 when the number of tweets increased by 1%, Ether volume would increase by 0.321%.
When looking at the predictability of tweets for the next day’s volume, a smaller influence of tweets is observed compared to the one shown in 2017. When the number of tweets increased by 1% on a certain day, Ether volume would increase by 0.296% the next day.
Despite the consistent positive influence between Ethereum-tweets and trading volume across the years, 2019 saw an inverse relationship between the two variables. When tweets increased by 1%, the trading volume would decrease by 0.167%. A similar influence was seen when analyzing the impact on the next days’ volume at -0.222%.
This is particularly interesting because 2019 was a slightly negative year for Ether returns, resulting in a -2.86% in total return. It seems that the increase in tweets had the effect of causing a reduction into the buying and selling of Ether, in line with the discouraging returns outlook for investors.
Tweets have no effect on returns
The primary goal of drawing this relationship is to determine if the number of tweets can have a direct impact on future returns. However, we cannot find any significant relationships between the variables in any of the years analyzed.
Will 2020 mimic 2017s trend?
Ether went from around $130 at the start of the year to reach $274 in mid-February, a 111% gain. After that great gain in price, the entire market was faced with a correction that led Ether price to go as low as $86. In recent days, Ether’s price recovered slightly to trade slightly above $120.
At the same time, the number of tweets mentioning Ethereum had an increasing trend going from an average daily number of tweets of 3,218 in January to an average of 4,355 tweets in between February and March 5. Notable spikes in the number of tweets mentioning Ethereum occured on Feb.13 and Feb. 28.
The number of daily tweets from Jan.1, 2020- March 5, 2020.
Even though there seems to be a slight relationship in the tweets trend and the increase in price for Ether, we do not find any significant influence of the number of tweets on Ether returns in 2020.
Nevertheless, as seen in previous years, there is a clear relationship between the number of tweets and Ether volume. When Ethereum-mentioning tweets increase by 1%, Ether trading volume increases by 1.265%.
When looking at the future volume predictability, we find a similar trend to the one observed in previous years when the number of tweets increases by 1% today, Ether volume increases by 1.198% the next day.
The top 3 currencies and their number of tweets
Bitcoin (BTC) and XRP analysis between the number of tweets mentioning each currency and their returns and trading volume showed consistent results throughout the years (between 2017-2019) concerning volume on the same day or future volume. However, the relationship between the number of tweets and returns occurs only in some instances.
When comparing those previous results with the case of Ether, investors see similar results when analyzing the volume but not when looking at returns.
Looking forward, based on the analysis for the top 3 currencies, investors have a clear view on the relationship between tweets and volume which could help mostly in short-term decision making.
Data for the number of tweets drawn from https://bitinfocharts.com. The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.