It's an open secret in the industry that hype and presence in social media are responsible for a major part of cryptocurrency market cap. It is therefore valuable to an investor to be able to quickly sift through the data available on social media, detect patterns and use them in formulating trading strategies.
Today we will be talking about sentiment analysis, and we will choose Reddit as the primary platform for this blog post. We have published the code on our forum so you can replicate the result and possibly plug in other social media sources.
Google defines sentiment analysis as
the process of computationally identifying and categorizing opinions expressed in a piece of text, especially in order to determine whether the writer's attitude towards a particular topic, product, etc., is positive, negative, or neutral.
What this means is that one doesn't have to waste hours and days of their life trying to catch up on all the news in a given subreddit. Machines can sift through this data much faster, and tell you both how active a subreddit is, as well as how positive/negative the crowd thinks the future of a coin is.
The chart above gives an overview of some of the most active coins on reddit in absolute terms. Notice the sharp growth of the number of words posted around December / January. Sounds like if you give people some rest over Christmas holidays they are more likely to write more stuff on reddit.
Overall, very few negative or very negative posts observed. The crowd is mostly neutral or slightly positive. Now, let's dive into more detail and review some subreddits in more detail.
I want to start with r/EtherDelta to give you an example of a subreddit with a fairly high amount of negativity. Since the founder of the exchange sold it to Chinese entrepreneurs who ran an ICO and disappeared, a lot of people have expressed their concerns with how the subreddit is governed. The sharp decline in users and number of words is similarly explained.
The second most popular crypto reddit boasts 5,000,000 monthly words posted about the world's first cryptocurrency. People seem to be casually optimistic about the future.
In comparison, the official Bitcoin Cash reddit is just a little bit smaller in size, but shares the overall shape of the curve and sentiment distribution.
If you thought bitcoin was popular, think again. r/CryptoCurrency is the rightful crypto reddit king when it comes to online discussion. It is truly the online pulse of what people think of crypto in general.
Litecoin positions itself as the little brother to Bitcoin, and overall reddit sentiment and participation stats show exactly that.
The worlds largest smart contract platform has respectable 500k words a month. It still doesn't hold the candle to r/Bitcoin, which is king of both reddit and coinmarketcap.
From blockchain 2.0 (ethereum) to blockchain 3.0. EOS is definitely a unique product on the market that makes strict tradeoffs between decentralization and performance, offering us a little bit of both. We are very excited for the mainnet launch and we will see how this story develops. Perhaps more discussion will help. So far though, r/eos is one of the more positively skewed subreddits of the whole analysis.
Moving on from blockchain 3.0 to self-proclaimed blockchain 4.0. Tron has a lot to prove to its investors. Also, sudden popularity in January looks suspicious. Just as suspicious as the plagiarized whitepaper, it would seem.
0xProject subreddit is one of my personal favorites. A small, quiet place that generally has quality discussions of 0x protocol, ZRX token economics problems, and relayer announcements.
OmiseGO commands a following almost as big as Ethereum. And it's not surprising, considering that founders of the two projects are close friends in real life and OMG is working on Plasma - a scaling solution for Ethereum blockchain.
The king of centralized coins got crazy popular towards the end of 2017, when the market was experiencing a truly massive pump. As the price of the coin went down, so did people's interest in this cryptocurrency.
Verge currency reddit suffers from the same problem as r/Ripple - people are only willing to discuss it when the price is going all the way up. As soon as the price drops investors seem to disappear. Must be HODL'ing in silence.
SiaCoin is one of the older coins in the industry and has an interesting bimodal distribution of comments. The first spike roughly coincides with the launch of Filecoin ICO, which will be sia's main competitor. The second, if I'm not mistaken, corresponds to news about Sia's Obelisk miner, Bitmain's plans to announce a siacoin ASIC, and sia's hard fork discussion.
Monero is both the most valuable and the most popular privacy coin. It is one of the more consistently positive subreddits, but also one of the more consistently negative. I guess privacy coins are fairly controversial and they inspire a clash of ideas and lengthy discussions.
I will be perfectly honest with you: I missed the cardano pump and, frankly, I am a little bit jealous still. The tech for this coin is top notch, and their approach to developing new blockchain using the best verification tools and minimizing investor risks is admirable. Overall, redditors seem to support my slightly optimistic assessment of this cryptocurrency.
IOTA is either revolutionary technology in the making or the most elaborate scam the history has ever seen. One thing about iota is undeniable: it surely is popular.
Nano (formerly known as RaiBlocks) is a new cryptocurrency architecture that has quickly become extremely popular amongst its followers due to quick zero-fee transactions this coin offers. I am personally very excited about Nano's technology, but my personal belief is that new cryptos that don't support smart contracts will not get necessary traction to be good long term investment.
Stellar is another low-fee cryptocurrency, created by one of Ripple's co-founders as a decentralized version of XRP. The coin has excellent developer documentation and a built-in decentralized exchange. It's smart contract capabilities are very limited, which doesn't prevent people from discussion this coin online and being bullish about its future.
Neo. Also known as AntShares. Also known as "Chinese Ethereum". For a lot of people it is hard to tell what truly differentiates Neo from the rest of the pack, and that's probably why there is a constant stream of newcomers discussing this coin. Overall, NEO seems to be pretty well received and boasts having fairly strong positivity.
DASH is another old coin that has aged well and occupies a well deserved spot in crypto top-10, both reddit wise and in market cap.
Ark is a new player in the game, but has already gathered a following around itself and boasts 100,000 words per month, most of which are either neutral or positive comments.
What did we learn?
Reddit definitely is as expected one of the birthplaces of hype for any cryptocurrency project, though we would not go so far to say that reddit activity is a correlation for a project's success. If anything it seems that positive, neutral or negativity activity mostly comes down to the release of big updates or sudden price changes.
It looks like we could say that sentiment analysis is a great indicator that something is happening in the project and that people are interested! Possibly a technique for you to use to avoid projects that have lulled into a dead activity? Lets us know what you think!