Why is “Community Buzz” so important in Crypto?
What is Community Buzz?
Decision-making principle of individual and institutional stock trading and venture capital investment in startups is no different from each other. The essence is the valuation of the company. People generally want to buy stocks of companies that are undervalued relative to their potential. Thus, logic and techniques for valuation such as PER (Price/Earnings Ratio) and PBR (Price/Book-value Ratio) have been accumulated in the stock market, and most traders still trade stocks with reference to these indicators. On the other hand, venture capital is making efforts to integrate a valuation method using various indicators for quantitative valuation of unlisted companies whose market capitalization cannot be measured.
Crypto market is not much different from the traditional market. Many crypto traders and venture capitals are constantly searching for intrinsic value of the crypto they want to invest in, and techniques to quantitatively evaluate the value. For instance, one of the most representative techniques include PlanB’s Stock-to-Flow model, which explains the correlation between supply and price of Bitcoin, or NV/NTV(Network Value/Network Transaction Value) based on MetCalfe’s Law, which determines the value of the network. In addition, On-chain Data, which is an excellent indicator that detects various movements on the actual blockchain network, has been successfully popularize by companies like CryptoQuant.
However, we realized one important factor that has been ignored: the fact that community has a greater influence on Crypto than any other market. As interest in Bitcoin increased rapidly from 2017, the price also exploded based on strong community support. In addition to Bitcoin, most altcoins also started to grow based on the community that owns the coin, and large exchanges have started adopting size and quality of the community as one of the main criteria for listing screening.
In early 2020, when Elon Musk mentioned DogeCoin, it quickly formed a strong community and recorded an exponential rise in price. Now, the answer to ‘Why the hell is the price of that coin going up?’ can be explained to some extent. As time passed by, the cryptocurrency market has grown into a supranational community that no country can ignore as the philosophy of decentralization and the era of Web3.0 are intertwined. This flow has developed into a concept such as DAO and has become an undeniable mainstream.
As the importance of the community is increasing, we started to think about whether we can quantitatively analyze the community power. If the community power can be quantitatively analyzed, it can be a powerful and meaningful indicator as much as on-chain data, and analysis of the data from various perspectives will be of great help in understanding trends and investing across blockchain industry.
We are aware that many people are talking about the Crypto Community they support through social media (usually called Shilling). So we started collecting data of a specific project or topic of high publicity and metion in Media, Forums and SNS channels such as Twitter, Reddit, YouTube, and Instagram. Here, we have excluded Messengers such as Whatsapp, Telegram, Wechat, which is a private community.
Accordingly, we decided to call the Mentions occurring in the crypto community “Community Buzz”. Community Buzz consists of all the Mentions that people share about a specific project, Crypto, or Trend. Through the analysis of the Mentions, we were able to understand the insights on mega trends, sentiment analysis of Mentions, and growth potential of specific projects.
A detailed analysis technique for Community Buzz analysis will be explained in a report to be published later, but first, we would like to show a brief case study of how this data can be referenced for project valuation.
Community Buzz Case Study
The following is an analysis of the relationship between Community Buzz data and crypto prices. With hypothesis that the higher the community power in the crypto market, the higher the probability of a price increase for the project, we looked at the correlation in several projects.
First, looking at the case of Luna, in August 2020, while the price was sideways, Community Buzz increased rapidly. This seems to have started to attract people’s attention as Luna has been listed on major exchanges such as Binance and Huobi, and LUNA/USDT margin trading has launched on MEXC.
From January 2021, it can be seen that interest in Terra and Luna is rapidly increasing. At that time, they announced the success of the Terra-based payment solution, resulting in fees of $16M per year. Also, $UST became the largest algorithm-based stablecoin on CoinGecko, and a Terra-based DeFi, Anchor Protocol secured a $167M deposit. It can be seen that in April 2021, after sufficient buzz data was generated, the Luna price rose sharply.
After that, the price showed a temporary drop, but in July 2021, Buzz Data surged once again. At that time, Terra’s wormhole support was made possible through the V2 UI, and Orion Money, a comprehensive financial De-Fi based on Terra, was launched on Ethereum.
As a result, the price rose steadily, approaching $80. Then, in December 2021, Vlaunch supported Luna, and as Terra became a hot topic again, such as $UST listing on Binance and Huobi, it can be seen that the price rose to the level of $100.
The power of Community Buzz can be seen in Gala, which became a hot topic due to an explosive price increase in a short period of time. $GALA was listed on Binance and Poloniex around June 2021 during the time of horizontal price movement.
At the same time, the new game project ‘Spider Tank’ was released and drew attention, and the price immediately rose to $0.1. Even in September 2021, when the price rose sharply in earnest, it can be seen that Buzz Data caused by Coinbase listing preceded, leading the price up.
Following this, the price fell rapidly. However, at this time, the announcement of partnerships with UnderArmour, UAbasketball, and Stephancurry30 drew attention once again, and it can be seen that it contributed to price recovery in the short term. After that, the price was supported at the $0.2 level, and CCG, Legend Reborn, etc. were added to the Gala Games ecosystem, and Buzz Data rose again. Accordingly, we can see the price increase in February 2022.
As such, it can be confirmed that there are cases where Community Buzz Data precedes the price to some extent from the point of view of the Peak-Driver. One thing for sure is, as more people comment on the web and increase community power, price increases will mostly follow.
In the next report, we will analyze this collected Community Buzz Data from various perspectives, observe the correlation with the price, and share it with our audience.
The crypto community is the backbone of the Web3.0 era. Numerous blockchain projects develop with community member participation and rewards. No matter how good the technology is, it’s nothing but a dead project without a community. Conversely, if the project is not very convincing, but the community is strong, the project has a relatively higher potential and a higher chance of a price increase.
Our valuation hypothesis on Community Buzz Data is based on this viewpoint, and we see this as an opportunity to understand the crypto industry more in-depth through different perspective and reevaluate the true value of the community.