Our social media analytics platform, PUMP 2.0, has several major use cases besides the measurement and tracking of asset-specific social sentiment. One of the most useful applications of PUMP 2.0 for investors, traders, and analysts is what we call “Catching the Amplification”. This revolves around detecting and predicting major social media sentiment spikes that act as precursors to big market events such as bank runs, crypto exchange exoduses, market-wide black swans, stock-specific crashes, and pump-and-dump crypto schemes.
PUMP 2.0 – Catching the Amplification
A key functionality of PUMP 2.0 is the ability to quantify and track social media sentiment related to specific financial assets – cryptocurrencies, market indices, bonds, equities, commodities, forex pairs, alternative assets, and even platforms like crypto exchanges.
The quantification of social sentiment measures (classified into bullish and bearish) allows PUMP 2.0 to not only track the sentiment indicators but also monitor for their large spikes. These large, sudden spikes, either of bullish or bearish nature, are often key predictors of massive market events ready to unfold.
Traditional market sentiment measures, which typically don’t account for social media signals, normally serve as lagging indicators in such situations. Many of these measures are based on technical signals such as price and volume data. As such, they react to big market developments only after a big event occurs. For instance, in order to calculate a traditional market sentiment measure like the VIX index, one would use the existing call and put options data. The call and put options data being used has already “absorbed” the current market developments and is not inherently independent of them.
In contrast, spikes in social media sentiment related to specific assets, platforms, or industry sectors often serve as leading indicators of big market developments. This is due to the fact that social media platforms and the discourse originating on them are not inherently dependent on what occurs on the market at any given time.
PUMP 2.0 continually monitors in real-time social media signals on 18 different global and regional social media networks, including the major ones – X, Reddit, Facebook, Telegram, SeekingAlpha, LinkedIn, and Weibo. As drastic changes in social sentiment occur, the platform registers these spikes and can warn users of the developments.
Specific Applications of Catching the Amplification
1. Predicting bank runs and banking collapses
Earlier this year, a trio of US banks – Silicon Valley Bank, Signature Bank, and First Republic Bank – along with the Swiss banking giant Credit Suisse fell victim to social media-fueled bank runs. Initial reports of balance sheet vulnerabilities led to intense discussions on social media, primarily on Twitter, as well as on financial forums. As a result, social sentiment signals for the affected banks turned drastically bearish. This was followed by bank runs that retail and institutional clients staged on the banks. Finally, the banking institutions collapsed and were acquired by rivals.
Invariably, bank runs on these institutions were preceded by sudden negative sentiment spikes that PUMP duly registered. Below is the social sentiment chart from PUMP for Credit Suisse, showing a large spike in bearish signals on 8 March, followed by the price collapse that started to unfold the next day.
2. Predicting crypto exchange exodus
Crypto exchanges operate in a volatile and largely unregulated environment. They are also vulnerable to the actions of crypto whales – large players who can destabilise the market or an exchange. The stock market might have George Soros, but the crypto market has a multitude of Soroses in various forms and sizes.
All these factors make cryptocurrency exchanges particularly vulnerable to collapses and sudden runs.
PUMP 2.0 now includes the ability to track sentiment changes and spikes for crypto exchange platforms like Binance, GATE.io, and others, and not only for specific cryptocurrencies like BNB or GT. This allows users of the platform to catch the amplification of signals for crypto exchanges.
3. Predicting asset-specific crashes
Financial assets across the major markets, such as cryptos, stocks, and commodities, experience normal ups and downs in sentiment all the time. However, large, sudden bearish sentiment spikes are often predictive of severe losses on the price chart. Investors using PUMP 2.0 can see these large spikes that serve as advance warnings of impeding price crashes.
4. Identifying pump-and-dump schemes
While the massive bearish sentiment spikes discussed above are often predictive of price crashes, sudden bullish sentiment spikes, particularly for small-cap coins in the crypto market, provide early warnings of pump-and-dump schemes in their early stages of implementation.
5. Predicting market-wide black swan events
Large sentiment spikes detected by PUMP 2.0 aren’t only useful for single-asset analysis. When sentiment spikes occur for several or many assets across the same sector, sub-sector, or entire market, this might be indicative of a black swan event building up or starting.
By continually tracking social sentiment across more than 16,000 financial assets, PUMP 2.0 acts as a real-time radar ready to detect wide-ranging black swans, events that have traditionally been devastating for many investors.
Catching social media signals’ amplification is a crucial use case for PUMP 2.0. This use case is specifically relevant as a risk management measure. Its five specific applications described in this article provide solid risk mitigation mechanism for investors and traders.
Catching the amplification is only one way PUMP 2.0 helps its users navigate financial markets successfully. There are other use cases for the platform, which we are going to cover in our future articles. Stay tuned for the upcoming coverage of these scenarios and use cases!