Following a recent surge in Bitcoin value, investors from all backgrounds have taken notice of the world of cryptocurrencies. In the last year alone, Bitcoin has risen more than 600%, while some digital currencies have risen even more. Understanding and profiting from cryptocurrencies requires cutting edge tools that help answer the question: How do we best adapt and execute our investment strategy?
Whether you want to invest in Bitcoin, Ethereum, Litecoin, or another up-and-coming cryptocurrency, social media is a valuable source to gather real-time breaking news to inform your investment strategy. Understanding social media alone is not enough: To win consistently in digital currencies requires the right information at the right time.
What are cryptocurrencies, and how do they work?
A cryptocurrency is a decentralized, peer-to-peer digital asset not managed by a central party. For example, dollars are managed by the United States Federal Reserve Banks, Euros are managed by the European Central Bank, and the Pound sterling is managed by the Bank of England. Digital currencies work differently.
Bitcoin is the largest and best-known cryptocurrency, though there are many others, including Ethereum, Litecoin, Dogecoin, Moero, Dash, Zcash. These currencies are maintained through a digital system known as Blockchain. With Blockchain, all coin ownership and transactions are tracked in a virtual ledger stored by thousands of computers around the world. Each transaction is added to a “block," which is then reflected on the ledger on all participating computers.
Breaking cryptocurrency news emerges on social networks
Digital currencies trade in a continuously open, 24/7/365 market. This always on approach creates a constant need for information, a contrast to traditional equities markets which have distinct market hours. Furthermore, the digital and global nature of cryptocurrencies make them even more volatile and susceptible to large swings in value.
Social networks also operate 24/7/365 and globally, so cryptocurrency investors naturally turn their attention to sources like Reddit and Twitter when discussing new developments and potential valuations. By relying on these networks for breaking news, cryptocurrency traders can better manage their risk and make smarter decisions.
Cryptocurrency-focused forums on the social network Reddit are among the fastest-growing topics on the site. One "subreddit," the term used for the various Reddit forums, is adding over 1,000 users per day. That specific forum has about 150,000 users sharing around 500 new discussion topics per day.
Twitter is another major source of cryptocurrency news, thanks to its succinct, timely and one-to-many design. Developers, cryptocurrency traders, and journalists alike often flock to Twitter to share breaking news on the currency. Calculating with Tweet Binder, a recent sample demonstrated that there are 2,000 mentions of the hashtag #Bitcoin about every 30 minutes.
Pinpoint valuable information to inform your cryptocurrency investment strategy
Now, let us zero in on Twitter. A quick glance at the #cryptocurrency hashtag on Twitter shows about a dozen Tweets per minute at any given time. This begs the question: What if a Tweet contained valuable information to inform your cryptocurrency investment strategy?
For example, on September 12, 2017, Litecoin founder Charlie Lee tweeted that Bitcoin would be banned in China. In a Tweet several minutes later, he clarified that was he was only referring to Bitcoin exchanges in China. (Note: Both Tweets have since been deleted). Around the same time, Jamie Dimon, CEO of JPMorgan Chase, called Bitcoin a fraud at the Delivering Alpha conference in New York. Following both of these events, there were substantially higher trading volumes and a drop in Bitcoin price.
Getting information similar to these examples earlier than anyone else could be immensely valuable. The next challenge is finding this information in a sea of noise that is fragmented across the web.
Tools like Dataminr have been adopted by traders to separate the investment signals from this noise. If we take the examples referenced above, Dataminr alerted clients to these Tweets well before the traditional news cycle had run with the story. Since its founding in 2009, Dataminr has been tapping into the full stream of Tweets, about 500 million per day, to detect and deliver to clients real-time breaking news alerts before they make headlines. Dataminr sits at the bleeding edge of information in the always on, volatile world of cryptocurrency news.
Leverage every tool at your disposal for improved digital currency profits
In the age of high-speed trading and trading bots, it is important to take advantage of every possible resource. Tapping into social media as a source for breaking news may be your best route to success in the lighting fast world of cryptocurrency.