Crypto Market’s Most Hated Rally Confirms Bull Run

Crypto markets are unpredictable. In this space, fundamentals don’t directly affect prices like stocks do, and valuations often reflect an uneasy atmosphere, a cult of personality, and a mixture of memes.

Investing and trading crypto has become murky for this reason. Active users, fee generation, total locked value, and even number of developers are all metrics that should matter. But they don’t.

Sentiment reigns supreme, and the high correlation between digital assets means that when Bitcoin suffers, the entire market is almost always affected.

It’s no surprise, then, that the concept of the “hated rally” has come into being as our current bear market cycle shows signs of slowing. The idea is that the more unloved crypto becomes, the more likely it is to surge higher when altcoin season arrives.

Take Solana (SOL), for example, which has attracted critics from Vitalik fans since it was dubbed the “Ethereum killer” circa 2018. Like Ethereum, Solana supports applications, NFTs, stablecoins, and tokens, but with roughly 100 times the throughput.

Crypto purists may argue that the network is more centralized than Ethereum due to its lower node count (roughly 2,900 to 7,700) and the high cost required to start a validating node.

On the other hand, Bitcoin diehards may dismiss Solana because of its initial coin offering. (Its delegated proof-of-stake consensus model doesn’t favor the orange coin crowd, either.)

The hatred of Solana among Ethereans and Bitcoiners was exacerbated by the FTX bankruptcy. One of Solana’s most hated backers was now convicted scammer Sam Bankman-Fried, who funded most of the projects in the Solana ecosystem from the beginning.

Solana is one of the best performing top 100 cryptocurrencies this year, gaining more than 400% from less than $10 to over $56. In the last month alone, SOL has doubled.

SOL would still need to triple and a half to reach its highest price in 2021. But despite all the haters, Solana easily surpasses the top two: ETH is up about 70% year to date, and BTC is up about 120%.

Other recent “hate rallies” include Terra Luna Classic (LUNC) — the same cryptocurrency at the center of the under-authoritative algorithmic stablecoin empire. LUNC surged more than 40% in a single day last weekend.

The new LUNA token, which is being pushed by the Terra community without Kwon, jumped 73% on the same day, while FTT, the native token of FTX, the still-bankrupt crypto exchange that was once Bankman-Fried, doubled.

Even the reserve price of the Bored Ape Yacht Club NFT has risen 60% since August, from $37,000 to over $60,000. By comparison, the S&P 500 has risen 2% over the same period.

Does all this mean that more haters will lead to greater price volatility? After taking sentiment readings from data services provider The Tie, I’m not entirely convinced.

The Tie has documented long-term negative sentiment for nearly two-thirds of the top 100 cryptocurrencies by market cap that are not stablecoins, wrapped or otherwise collateralized tokens. Only about a quarter of these cryptocurrencies have outperformed Bitcoin so far.

Conflux, which connects the East and the West, has risen by 640%. Solana, FTT and THORChain are also tied for the lead, having quadrupled since January.

Meanwhile, about a quarter of the top 30 cryptocurrencies that saw positive sentiment at the start of the year have beaten Bitcoin. These include MakerDAO’s 160% gain and Injective’s massive 1,100% growth.

(Erik Saberski, The Tie’s vice president of data science, told me that long-term sentiment is calculated by collecting Twitter posts about certain cryptocurrencies and measuring how positive or negative they are. It’s a simplistic “bag of words” approach, where each word has a sentiment score: some are negative, some are positive. If the average of the words is positive, the tweet as a whole is positive; if the average of the words is negative, it’s negative.)

Data shows that negative sentiment plagued most popular cryptocurrencies at the beginning of the year, and many currencies turned positive after Bitcoin recovered. This is to be expected given how brutal this crypto winter has been. Of course, many cryptocurrencies with negative sentiment have risen sharply this year, but since almost all of them have been affected by the bad atmosphere, we should not read too much into it.

The data does show the opposite. There is a correlation between negative sentiment and poor returns: of the 60 non-stablecoins, wrapped or collateralized tokens in the top 100 by market cap, two-thirds of the cryptocurrencies that underperformed Bitcoin had negative sentiment at the start of the year.

ApeCoin, the token that will one day be at the heart of Yuga Labs’ Bored Apes metaverse, is the most obvious example, down more than 60% while Twitter sentiment is slightly negative. Craig Wright’s BSV — which had the worst sentiment of any analyzed cryptocurrency at the start of the year — is another example, up just 20% while the rest of the market is surging.

So it might be tempting to make portfolio decisions based on how much haters hate crypto. But is it better to stick to other proven indicators — astrological alignment, for example?