The investing world has a common saying: "The Trend is Your Friend." This phrase refers to the belief that most of the time sticking with the current market trend will result in positive results.
There are three main metrics that can be used to identify market trends: technical analysis ( looking at price charts in order to spot opportunities ); fundamental analysis ( looking at the underlying economic and technological factors of a project; and social media metrics which allow investors to listen to what the public is interested in.
Google Trends is one of the most popular metrics crypto traders use for identifying emerging patterns. It analyzes the popularity search queries that were performed using Google's search engine. Google Trends allows users to view data in simple graphs and also provides a breakdown by geographic region.
The Google Trends chart of "Bitcoin", shows several spikes in searches in the past year. These spikes are most notable in early January, late Februar, mid-April, and again in May.
The BTC price chart clearly shows that each spike in Google search coincided with a rise in Bitcoin's price ( BTC). This indicates that search queries can provide some insight into trends that might impact prices.
This same approach can be used for altcoins as well as decentralized finance tokens (DeFi). Let's look at how social analytics preceded the rise of popular NFT-related tokens as well as DeFi blue chips such Polygon's MATIC.
Two waves of interest in DeFi were recorded
At the start of 2021 DeFi was the most popular sector on the cryptocurrency market. It seemed as if there was always a new lending or farming protocol that reached $1 billion in total locked.
According to CoinGecko data, the market capitalization for the top 100 DeFi tokens grew rapidly in January and then topped out in May after the market collapsed.
The following chart is produced by searching "DeFi" in Google Trends. It shows that there was a spike in queries at the same time that the market cap for DeFi tokens started to rise.
Even though the March month saw a decrease in queries, this figure continued to rise.
Spikes in searches in April and May occurred at the same time spikes in DeFi market caps.
At the end of February, searches for "NFT” went soaring.
The world was captivated by the rise of nonfungible tokens (or NFTs) in February and March. Big-name celebrities such as Rob Gronkowski, NFL veteran, and Jack Dorsey, Twitter CEO, got involved in the action. Auction houses like Sotheby's were able to facilitate NFT auctions including the sale of CryptoPunk #7523 which sold for $11.8 million.
NFT projects have seen some of the largest monthly gains, including a 443% increase in THETA's price between March 1st and 21 and a 530% rise in Axie Infinity Shards' (AXS), price from February 23rd to March 15. Between February 13th and March 13, Chiliz (CHZ), saw a 3,690% price increase.
Google Trends registered a rise in NFT-related search results as a result of the price increase.
Although it was widely reported that NFTs took DeFi's thunder, the combined DeFi-NFT search interest charts show evidence of the rotation. Below you can see that searches for DeFi are falling cause there has been a sudden rise in NFT queries.
NFT search queries were also much more common than DeFi. This suggests that nonfungible tokens might be a good way to encourage widespread adoption of cryptocurrency.
The price charts show that a dip in DeFi tokens prices is occurring around the same time NFT tokens prices start rising. This indicates some degree of rotation from DeFi into NFTs.
Both charts show spikes of search interest that coincide with price increases in NFT and DeFi tokens. They also capture the declining interest as prices dropped in June and July.
Tweet mentions can also indicate growing adoption
Twitter can also be a great source of information about coins that retail investors may be interested in. Analyzing the number tweet mentions can help you pinpoint which projects are likely to see price movement in the future.
Polygon was a promising layer-two solution for Ethereum in 2021. Social media mentions increased substantially as Polygon's native MATIC token price soared 700%, from $0.33 on April 26th to $2.68 on May 18.