Bitcoin (BTC) price has been testing the $10,000 mark this calendar month as online metrics like the number of tweets and Google searches mentioning Bitcoin bear witness a two yr-loftier.

Cryptocurrency market weekly overview. Source: Coin360

Cryptocurrency market place weekly overview. Source: Coin360

Several relationships take been established betwixt external factors and Bitcoin price evolution. Most notably, social media metrics like the number of tweets mentioning a detail cryptocurrency, the number of comments or posts in a cryptocurrency defended subreddit, the number of daily search volume for a specific crypto theme, or even the mentions of "Lambos" on Reddit.

Sentiment analysis from this kind of information can help investors attempting to predict returns, thus making it a novel approach for traditional investors.

Analyzing tweets and Bitcoin cost from 2022 to 2022

Looking at the daily number of tweets mentioning Bitcoin since 2022, there is a clear fasten during the 2022 balderdash-run. On Dec. vii, 2022, there was a record-high of 155,600 tweets mentioning Bitcoin. Following that spike, throughout 2022 and 2022 the average number of tweets reduced substantially, although there was a small spike on June 26 during the peak of Bitcoin'southward smaller bull run in 2022.Number of daily tweets from January 2022-December 2022.

Number of daily tweets from January 2022-December 2022.

This medium-term tendency between the number of tweets and Bitcoin price may suggest that both variables are related or that one can exist a predictor of the other. Every bit expected, throughout 2022 the correlation between price and the number of tweets is the highest beyond the years at 0.86.

A correlation of 1 ways that Bitcoin and the number of tweets are fully positively correlated, while — 1 means they are fully inversely correlated. Additionally, a correlation of 0 means they are non correlated in any mode.

Fifty-fifty though 2022 was a bear flow, the same high relationship between price and tweets remains with a correlation of 0.74. This human relationship is much lower in 2022 (0.12) even though Bitcoin showed a great gain in price between March and June.

Correlation between Bitcoin price and the number of daily tweets.

Correlation between Bitcoin price and the number of daily tweets.

Tweets as a predictor of Bitcoin'southward volume

High correlation values may tempt enthusiasts to assume that the number of tweets can piece of work as a reliable predictor of Bitcoin'due south time to come prices. However, by employing year-on-year analysis, we discover significant results between the number of tweets and volume — a central intake for investors to incorporate these social metrics into their technical analysis.

When information technology comes to the influence of tweets on Bitcoin's volume, the relationship during 2022 is stronger than in 2022 or 2022 and significant beyond the years. In 2022, if the number of tweets increased by ane%, we could presume a higher probability that Bitcoin'south volume would increase past 2.6% on the same day. This relationship holds for the other years but the increase in book is beneath 1% in both 2022 and 2022.

By analyzing the future power of tweets to predict next solar day's volume, we find similar meaning results with like magnitude, meaning, when today's number of tweets increment by 1%, Bitcoin's volume increases the next day by two.v% in 2022, 0.64% in 2022 and by 0.72% in 2022.

Do tweets accurately predict Bitcoin returns?

The holy grail of whatsoever financial market would exist the ability to predict future returns. Across the years, we've not seen any significant results between the number of tweets and Bitcoin returns. Unless 1 counts 2022 when the number of tweets increased by 1%, returns would increase by 0.036% on the aforementioned day. When trying to found a human relationship between the number of tweets and future Bitcoin returns, we find no significant results, hence we cannot establish the aforementioned conclusion equally we did regarding volume.

A recent outlook on this relationship

Since the outset of the year, Bitcoin has seen tremendous growth resulting in a 27% return for crypto hedge funds in January, the highest operation seen since 2022. This data point aligns with altcoins which are following an even greater positive trend. It also leaves the door open to further research into whether social trends previously observed really impact crypto trading volume. It would exist useful to reconfirm whether or not the start of 2022 shares like characteristics to the bullish periods in 2022 or 2022.

Bitcoin daily price from Jan.1, 2022-Feb.13, 2022.

Bitcoin daily cost from Jan.1, 2022-February.13, 2022.

When it comes to the average number of tweets mentioning Bitcoin in January and Feb this twelvemonth, in that location has been an increase from the average observed during 2022 - from a daily boilerplate of xviii,972 tweets in 2022 to an average of 22,070 tweets in the starting time of 2022. Besides that, an abnormal spike in the number of tweets happened on Feb.2, increasing the average number of tweets this February (31,945 tweets) in comparing to Jan (17,929 tweets).

The number of daily tweets from Jan.1, 2022-Feb.13, 2022.

The number of daily tweets from January.1, 2022-Feb.13, 2022.

Post-obit this trend, nosotros find that the relationship established between the number of tweets and volume is also observable in the get-go month and half of 2022. However, the magnitude of the impact that the number of tweets causes in book is less than in other years.

When the number of tweets increases by ane%, book increases past 0.423% on the same day. The impact is slightly smaller when looking at the predicting ability of the number of tweets. When these increase by 1% today, the volume will increase past 0.34% the next day.

Looking forwards, investors can incorporate the influence of the number of tweets into their analysis equally the movement in transaction volume occurs consistently throughout the years. All of this is worth some consideration as many analysts have suggested that a new bull trend is taking shape in the crypto marketplace.

Therefore, looking at social metrics spikes like tweets tin can complement investors' ability to determine periods of speculation so they can adapt their investment strategies accordingly.

Data for the number of tweets fatigued from https://bitinfocharts.com. The views and opinions expressed here are solely those of the author and practice not necessarily reflect the views of Cointelegraph. Every investment and trading motion involves risk. You should comport your own research when making a conclusion.