Study: How does news and social media affect the Bitcoin halving?

What causes the price Bitcoin to change? The answer is simple, and it is the same as every other asset: news that influences the opinions of individuals. Specifically, news inspires investors to either sell or buy a given asset. How long this sentiment lasts is a sort of feedback loop – if the price keeps going up or down, the news will keep reporting the trend, which will keep fueling the opinions of traders. Bitcoin recently experienced an unpresented price gain of over 20%. 

Here at CryptoMood, we specialize in analyzing both news reports and social media opinions about cryptocurrencies. Apparently we do this pretty well – the image you see above is from our mobile app, which detected a massive spike in positive opinions about Bitcoin shortly before the price went parabolic. We decided to do a little more research and see what’s going on behind the scenes that’s contributing to the price of Bitcoin around the halving.

What is the Bitcoin Halving?

To briefly recap, the Bitcoin halving is an event which takes place roughly every 4 years. The reason why it is significant is that it has historically been the precursor to an explosion in Bitcoin’s price. This is because after each halving, the reward Bitcoin miners receive is cut in half. This translates into half of the number of new Bitcoins being introduced into the market. If demand stays the same, on paper this would lead to a doubling in price at the very least. However, there are two additional factors to consider.

The first is that Bitcoin and other cryptocurrencies are emerging assets. They have yet to see mainstream adoption but are gradually becoming recognized as they begin to disrupt existing industries, namely finance. As their potential becomes recognized, the demand and therefore the value goes up.

Normally a few months to a year after the halving, the sudden spike in price makes the news and causes a lot of online discussion. This attracts so called “retail investors”, those who were formerly unaware of cryptocurrency. They experience a “fear of missing out” (FOMO) and begin to actively buy not only Bitcoin, but all kinds of cryptocurrencies. In a nutshell, that is why Bitcoin’s price grows so significantly because of the halving event.

Analysis: Bitcoin Halving News And Discussion

As mentioned in the previous paragraph, it is news reports and online chatter which turn the heads of investors and cause them to buy Bitcoin. When it comes to the cryptocurrency community, a significant amount of interaction takes place over Twitter. In many cases, it is tweets from notable figures in the cryptosphere which cause assets to explode in price. The most recent example is when Justin Sun tweeted he was having a charity dinner with Warrren Buffett. The price of his cryptocurrency, TRON, skyrocketed shortly afterwards.

Our analysis of tweets mentioning the Bitcoin halving found that since the start of this year, the number of tweets mentioning the halving has tripled. There have also been huge spikes in tweets about the Bitcoin halving in recent days. This is not surprising since we are so close to the actual halving event. Awareness and discussion of the Bitcoin halving on social media may be why Bitcoin has seen such impressive gains in recent weeks since the nasty 50% drop in March.

A similar pattern emerged when we examined news articles which mentioned the bitcoin halving. Interestingly enough, there was also a 3-fold increase in the number of articles talking about it in the same time period. Although a causal relationship cannot be clearly established from the data we gathered here, it makes you wonder just how much this news could be influencing social media discussion.

Is Bitcoin good or bad?

As some of you might have realized, it is not only the volume of news and social media interaction which matters. It’s amazing that there has been a 300% increase in news articles and tweets mentioning the Bitcoin halving, but that wouldn’t be such a good thing if they were all negative! That’s where sentiment analysis comes in. It would make no sense to read every single article written about Bitcoin this year or comb through the Twitter feed looking for mentions about the Bitcoin halving. Instead, you can use sentiment analysis, a tool which uses natural language processing (NLP) to identify whether a given text is saying positive or negative things about a target subject. 

We do this a little differently though – we use Artificial Intelligence. Instead of some lame robotic analysis, we taught our AI to recognize what words and phrases are used to describe cryptocurrencies, since words like “moon” (exponential price growth) and acronyms like “FOMO” aren’t fully recognized by regular sentiment analysis tools.

Enough of the technical stuff, here’s what we found. About two-thirds of news articles about the Bitcoin halving were positive, with a slight dip in positivity after that horrible crash in March. As you can see in the graph, the positive opinion about the halving is slowly returning to the news.

Twitter on the other hand appears to be much more enthusiastic. The graph below shows just how positive users on the platform are about the Bitcoin halving. Although you can see a few spikes in negative opinion when Bitcoin had some corrections, the overall sentiment is pretty darn high and continues to rise!

How to predict the price of Bitcoin?

There aren’t very many certainties in life but one of them is that you can never predict the future with 100% accuracy. What is also evident though is that if you can be up to date and have immediate access to information about assets, this allows you to be far enough ahead of the curve to capitalize on the resulting price pump or dump.

CryptoMood takes this one step further because we also keep track of news and social sentiment. We actually turned them into a new unique indicator with its own peaks and valleys. Why does this matter? Well, it means you can theoretically get a sense of roughly when people will stop buying or stop selling.

For example, if you see that the sentiment curve is starting to peak, where is it probably going to go? Back down, and that means you should sell. Alternatively, you see the opinion about Bitcoin is dismal, it’s all the way down but it’s leveling off. Where will it probably go next? Up! So you’d know that it would probably be a good time to buy. Traders do this already with other price data indicators but what makes the sentiment indicator important is that it comes BEFORE the price data, sometimes hours before!

Don’t believe it? Well, look at the data! Compared the sentiment scores to the price of Bitcoin and we found that in many cases, there was a huge spike in sentiment before the price increased or decreased. Sometimes this spike in sentiment occurred DAYS before it was reflected in Bitcoin’s price! This is quite incredible, but we’re not satisfied! Our Sentiment Analysis AI still needs a bit of work to perfect but we are certain we will get there soon enough. As it becomes better, these trends might become even more pronounced. Stick around as we discover just how powerful CryptoMood can be for cryptocurrency trading!