And yet, despite these difficulties, interest in cryptocurrencies still remains high and the long term outlook, according to many commentators, is very rosy.
Why is this? One way to understand the positive sentiment that continues to underpin cryptocurrencies is to examine how people are writing about them online, in blog posts, news articles and on social media. This is exactly what audience intelligence firm Pulsar have done, in their New Social Currency report (registration required).
The Pulsar platform pulls in data from social media and breaks it down using proprietary algorithms and the latest AI techniques.
Pulsar analysed the 4.9 million social media posts and 19.5 million interactions of over 1.5 million people who were writing about cryptocurrencies between September 2017 and January 2018.
And significantly, for the purpose of their report, Pulsar looked at mainstream interest in cryptocurrencies, rather than comments from the “bubble” of crypto specialists.
Why use cryptocurrency?
Cryptocurrencies have several advantages over traditional forms of money.
Perhaps the most important is that transactions are anonymous as they are not connected to real world identities. Pulsar found that people, especially younger people in the 25-34 age range, like the fact that currencies like Bitcoin enable you to keep transactions private.
And because they use the internet they are fast and global. In fact frictionless money transfer is one of the key advantages that people see in cryptocurrency.
What are the obstacles to their use?
Like any currency, cryptocurrencies are used to make or receive payments. Unlike many forms of currency however cryptocurrency transactions are set in stone once they have happened.
They can’t be reversed. This means that once you send money to someone (or your money is taken by someone like a hacker) it’s gone and no one can get it back for you.
But perhaps the most important advantage that today’s virtual currencies have is that they are very secure because they are protected by strong cryptography. And this is ironic because one of the perceived obstacles to using virtual money is a fear of its security. According to Pulsar, some, especially those in the 35-44 age range, worry that it might be possible for someone to steal their virtual money and if that happened they would have no recourse.
Another issue that Pulsar uncovered is that people consider the regulation and legal status of virtual currency. However sentiment isn’t particularly positive or negative here: the conversations are more to do with speculating about what sort of regulation will be put in place rather than worries about how regulation might impact on the profitability of cryptocurrency investment.
Who is interested in cryptocurrency?
Given the uncertainties and risks around cryptocurrency, it’s not very surprising that conversations online are dominated by a young, tech-savvy group of people. According to Pulsar, it’s not just young, white males though. One third of people talking about crypto are female, one third are parents, 43% are non-white and 55% are over 35.
Pulsar describes them as follows:
- Pop culture techies (44%): young people with an interest in technology without being tech leaders. These people are early adopters of new consumer technology and are interested in sports and entertainment
- Crypto geeks (18%): older people who self-identify as participants in the cryptocurrency space; these early adopters of virtual currency are often highly technical and may be thought leaders, developers or investors in technology
- Millennial investors (9%): the youngest group identified by Pulsar, but clearly with money to invest; these people see crypto as an exciting new place to make money
- Iconoclasts (7%): technology entrepreneurs and leaders who are often outspoken with a contrarian view of the future
- News junkies (2%): the oldest group who follow online news about politics and business intensively
Why are virtual currencies so volatile?
The price of virtual currencies fluctuates on a daily basis. At the start of 2017 a single Bitcoin traded at $1000. A year later it was at almost $20,000. And by mid-2018 it was back down to around $5000.
It’s impossible to predict the future value of course. But there is one fact that we can use to help us. The price of cryptocurrency is pegged quite firmly to online sentiment.
As can be seen in the diagram below, Pulsar found that Bitcoin’s price is correlated with the volume and sentiment of comments on social media. And interestingly the price volatility follows, and doesn’t precede, the comments. Patterns in social media conversation signal upcoming Bitcoin price movements.
How can this be? It’s because online discussions stimulate interest in, and action around, virtual currency. Spikes in online conversation volumes frequently precede spikes in web search volume by 1 day and spikes in price by 2 or 3 days. Over the full period of Pulsar’s research there was a strong and statistically relevant (r=0.6) correlation between conversation levels and a rising Bitcoin price.
This is borne out by analysis on the Investopedia website which gives eight reasons for Bitcoin’s volatility. Five of these are:
- Bad press
- Fluctuating perceived value
- Fluctuating perceptions in method of value
- Investors reacting to security breaches
- High profile losses drive further losses
In other words, Investopedia bear out Pulsar’s research that indicates much of the volatility in Bitcoin’s value is caused by what people read online: bad press, comments about value and methodologies; news of breaches and price changes.
Interesting, and possibly very profitable. Unfortunately the data set is relatively limited as real online interest in cryptocurrency and Bitcoin in particular really only started in January 2017. So it is impossible to extrapolate future price levels for Bitcoin and other currencies.
However as long as the current level of interest is displayed in online channels. It is fairly certain that cryptocurrencies have a very viable future.
For more information about Pulsar please visit www.pulsarplatform.com
This article is published by Lyonsdown Ltd in association with Fenix Media Ltd T/A Pulsar. Image under licence from iStockPhoto.com copyright D-Keine