Sentiment analysis: Is the Bitcoin bottom in?

Wen moon sir?

After Bitcoin crashed through the $6,000 barrier to new 2018 lows, I was interested to see how sentiment shifted among the 135 influencers and traders I follow. Surely that 500-point price surge in one hour on June 24 meant that our fortunes had finally turned, right? Right?!

Sadly, there’s nothing in my data indicating we’ve bottomed out yet.

As you can see in the chart above, sentiment bottomed when the $BTC price dropped as low as $5,750 on some exchanges and spiked rapidly shortly thereafter.  But there’s just been no juice in the rally. Sentiment has slowly tumbled, falling back into the negative early in the trading day June 27.

Sentiment analysis isn’t terrific at predicting bottoms, but it’s good at confirming them. Why? Well, for one, recently published researched out of the Stevens Institute of Technology showed that social media sentiment is linked to Bitcoin price movement.

In terms of my data, that’s proven to be true so far. In April, when the market turned around, we saw overwhelmingly positive sentiment across the board. And we’re just not seeing that right now.

That’s not to say it won’t happen. We could see a rally in the coming days and weeks, there’s just nothing to confirm that yet.

Let’s look back a bit further.

If you looked at the chart above and said there’s nothing that really draws your eye, you’d be right. This chart, showing sentiment going back to late-May, is pretty boring. In order to confirm a breakout, I want to see a jagged uptrend on one of these long-term charts.

Again, I want to stress that I’m talking about confirmation here. A rally like we saw in April can be weeks long at a time and missing the start isn’t going to hurt you too much. Jump in too early, and it’s easy to get rekt ahead of another nose dive.

The other thing we can look at is volume. Influencers and traders post on social media more when the market’s hot, and less when it’s not.  It’s decidedly not.

If things were really going to turn around after Sunday’s spring, I would’ve expected to see Twitter on fire Monday morning. Instead, we bottomed out. Volume was among the lowest it’s been in the last few months.

So is the bottom in? I find it difficult to believe. The majority of the folks I follow have suggested we’re in for at least one more dip into the mid-$5,000s or perhaps even lower. Things could still turn around, but with each passing day that $BTC shows no follow through on Sunday’s pump, it seems less likely.

If it does and we spring up once more, I’m going to need to see a little more conviction than we’ve seen so far this week. Trade safe.

Methodology

Each week, I scrape the Twitter accounts of some of the crypto world’s favorite influencers, traders and TA folk. I run a sentiment analysis to see which coins they are mentioning positively, neutrally and which they are mentioning in a negative light.

I also take in data on unique influencers, retweets, favorites, volume and strength of feeling in sentiment. I used this data to create rankings of coins and tokens, as well as to look at market performance in a given time period. 

I calculate my coin power rating through a weighted formula that takes into consideration volume, number of unique influencers and sentiment. The higher the score, the better, the lower the worse.

This isn’t financial advice, just my own way of trying to make sense of what’s out there. And as with most things, the more data I collect, hopefully, the more interesting it’ll be. This is a work in progress. Please leave suggestions on how to make it better. I imagine if I keep up with it, I’ll be able to expand a bunch of the analysis, but I wanted to start somewhere.