The flux in the prices of Bitcoin has already inspired a host of new researches. They all want to study the patterns of the prices. No doubt people are interested in the prices of Bitcoin and other cryptocurrencies. They multiply the original value in a very short time.
The comparison of the crypto market with the stock market is revealing. The shift in the prices of stocks are steady, to say the least, and are influenced by multivariate factors. However, the degree to which the prices of cryptocurrencies swing is much higher than those of stocks.
The prices of TRON, for example, jumped three times in just a single week last month. There are very few stocks who have gained so much traction in so little time. Some people point this as the biggest weakness of the crypto market.
Stable Medium of Exchange?
The stabilizing factor is essential for Bitcoin and other cryptocurrencies to be adopted as a reliable medium of exchange. Others point out and say that the Bitcoin and crypto market will slowly siphon money from the stock market given the huge returns it generates.
This was the case in Pakistan where stock traders migrated quickly to crypto market when they got the taste of the exponential returns. But imitating the Pakistani behavior in the United States is not easy. Wall Street is still very skeptical of the crypto phenomenon.
Wall Street and their musings
They are weighing their chances and taking cautionary measures. Lloyd Blankfein, CEO of Goldman Sachs demonstrated this attitude in a recent interview. Mr. Blankfein is known for his harsh rhetoric about crypto assets. But now he reversed his earlier position and said it is not up to him to decide.
He further mused that why the world can’t have a consensus digital currency. It would be the natural progression from the fiat money in the same way fiat replaced gold and silver. This view is little problematic given the existence of fraudulent ICOs beats the existence of fraudulent IPOs especially across the time spectrum.
So the crux of all these debates is the ability of Bitcoin or any other crypto asset to emerge as a reliable medium of exchange in the real world. As far as the digital world is concerned, Ross Ulbricht has proved the reliability of Bitcoin on Silk Route. In order to qualify in the real world, the price patterns of the Bitcoin needed to be deciphered clearly.
“From Bitcoin to Big Coin”
This is where a new research paper co-authored by Feng Mai and Qing Bai comes into the picture. The paper investigated the influence of social media on Bitcoin prices. It is called, “From Bitcoin to Big Coin: The Impacts of Social Media on Bitcoin Performance”. The research concluded that the comments and tweets of the social media users who are highly active have an insignificant impact on the prices of Bitcoin. In reverse, the infrequent users of social media had greater impact on the prices.
The abstract of the paper reads, “Interestingly, social media’s effects on bitcoin are driven primarily by the silent majority, the 95 percent of users who are less active and whose contributions amount to less than 40 percent of total messages”.
Silent Majority
Mai attributed this to the fact that silent majority have more power over Bitcoin prices. This is because they are not seen by the users as having an agenda and thus their views and apprehensions are much more influential.
Stevens Institute of Technology analyzed almost 344,000 Bitcointalk forum posts and 3.4 million tweets. The analysis continued for almost 24 months. The paper claimed,
“To leverage the effects of social influence on Bitcoin markets, investors should actively follow the most influential people in a social network to collect market information much more efficiently. However, the power of the silent majority should not be ignored, as we show that their sentiments can be the more important metric in predicting the movement of future prices”.
The paper in its conclusion said, “The predictability of Bitcoin returns should strengthen their reliability as a regular medium of exchange. In addition to its unique benefits (i.e., lower transaction costs, the potential to combat poverty and oppression, stimulus for financial innovation), Bitcoin does not present a threat to economic activity by disrupting traditional channels of commerce. Instead, its global transmissibility opens new markets to merchants and service providers”.