Analyzing Twitter mentions and Google Trends data is another way traders keep an eye on emerging trends and sector rotations in the cryptocurrency ecosystem.
Altcoin Roundup: Data shows social metrics surge ahead of DeFi and NFT price ralliesMARKET ANALYSIS
A common saying in the investing world is “The trend is your friend,” a phrase that points to the idea that the majority of the time, sticking with the prevailing market trend will produce positive results.
Some of the common metrics used to identify market trends include: technical analysis, which involves studying price charts to spot opportunities; fundamental analysis, which involves looking at a project’s underlying economic and technological factors; and social media metrics, which help an investor listen to the pulse of what the wider public is focused on.
One of the more popular metrics that crypto traders use to identify emerging patterns is Google Trends, a product that analyzes the popularity of search queries performed via Google’s search engine. Using Google Trends, users can view the data in simple line graphs that also provide a breakdown by geographical region.
The Google Trends chart for “Bitcoin” shows several sharp spikes in searches over the past year, most notably in early January, late February, mid-April and again in mid-May.
Bitcoin interest over time. Source: Google Trends
A look at the BTC price chart shows that each of the spikes in Google searches coincided with run-ups in the price of Bitcoin (BTC) and indicates that search queries do indeed offer some insight into identifying trends that could impact prices.
BTC/USDT 1-day chart. Source: TradingView
The same approach can also be applied to altcoins and decentralized finance (DeFi) tokens. Let’s take a look at how social analysis preceded the rise of popular NFT-related tokens and DeFi blue chips like Polygon’s MATIC.
Interest in DeFi came in two waves
DeFi was the hottest sector in the cryptocurrency market at the beginning of 2021, and it seemed like not a day passed without some newly emerged lending or farming protocol reaching $1 billion in total value locked.
Total market capitalization of the top 100 DeFi tokens. Source: CoinGecko
Data from CoinGecko shows that the total market capitalization of the top 100 DeFi tokens began to rapidly increase in mid-January, and eventually, the figure peaked in mid-May after the entire cryptocurrency market proceeded to sell off.
Searching “DeFi” in Google Trends produces the following chart, which actually shows a spike in the number of queries around the same time as the market cap of DeFi tokens began to increase.
DeFi search interest over time. Source: Google Trends
This figure continued to increase even after the number of queries declined during the month of March.
Spikes seen in the number of searches in April and again in May also occurred around the same time as spikes in the DeFi market cap.
Searches for “NFT” went parabolic at the end of February
The rise of nonfungible tokens, or NFTs, in February and March caught the world’s attention as big-name celebrities like NFL veteran Rob Gronkowski and Twitter CEO Jack Dorsey got in on the action and established auction houses like Sotheby’s helped facilitate NFT auctions, including the recent sale of CryptoPunk #7523, which was sold for a record $11.8 million.
THETA/USDT vs. AXS/USDT vs. EJN/USDT vs. CHZ/USDT vs. MANA/USDT 1-day chart. Source: TradingView
Some of the biggest monthly gains from NFT projects include a 443% gain in the price of THETA between March 1 and 21, and a 530% gain in the price of Axie Infinity Shards (AXS) from Feb. 23 to March 15. Chiliz (CHZ) saw a 3,690% surge in price between Feb. 13 and March 13.
The increase in prices coincided with a surge in NFT-related searches registered by Google Trends.
NFT search interest over time. Source: Google Trends
While it was widely reported that NFTs stole DeFi’s thunder, evidence of the rotation can be seen when the DeFi and NFT search interest charts are combined. As shown below, there is a sudden and massive rise in NFT queries as searches for DeFi fall.
Search interest in DeFi (blue) vs. search interest in NFT (red). Source: Google Trends
The magnitude of NFT search queries was also significantly higher than that of DeFi, hinting that nonfungible tokens may be an optimal route to encouraging the widespread adoption of cryptocurrencies.
Looking at the late February to early March timeframe on the price charts, a dip in the price of DeFi tokens is seen at roughly the same time as the prices of NFT tokens start to rise, indicating some level of rotation out of DeFi and into NFTs.
Both charts show spikes in search interest that line up with price increases in related DeFi and NFT tokens, and they also manage to capture the diminishing interest seen as prices fell in June and July.