Ben Cowen’s Social Risk Indicator: Strengths and Weaknesses
One of the main inspirations for creating my own social interest indicator was Ben Cowen’s Youtube Channel. (1) He developed a Total Social Risk indicator and frequently refers to it in its market updates, with his most recent video called „Bitcoin Social Risk“ (18.11.2024) (2).
The premise is that high „social risk“ can help identify market cycle tops. Cowen defines social risk as a quantified retail interest, focusing user activity on the platforms „X“ and „Youtube“. His „Total Social Risk“ is composed of 5 components:
„Youtube Subsubs Risk“: measures growth in subscribers to crypto-related YouTube channels
„Youtube Views Risk“: tracks increases in views on crypto YouTube channels
„Twitter Analysts Risk“: reports the growth in new followers for crypto analysts on X
„Twitter Exchanges Risk“: measures the increase in followers for crypto exchanges on X
„Twitter Layer 1s Risk“: monitors the growth in followers for Layer 1 projects on X
The specific weighing of each factor in the final Social Risk metric is not publicly disclosed. The metric is normalized, ranging from (lowest social risk) to 1 (highest social risk).
Performance of the Social Risk Indicator
Cowen’s Social Risk Indicator has historically performed well in identifying Bitcoin cycle tops. When the indicator reached values above 0.8, it successfully signaled previous market peaks. In December 2017, it coincided with the Bitcoin bull run peak, and in April 2021, it marked the prolonged range of distribution phase at the market top. The indicator’s strong performance was largely due to „X“ and „Youtube“ having been the go to social media platforms for crypto users. Additionally, Cowen’s Youtube-based metrics is highly representative, as it includes data from the 36 main influencers on YouTube, making it a solid reflection of retails interest.
Image 1: Social Risk Indicator and BTC price correlation. Image has been taken from publicly available YouTube video of Ben Cowen’s Youtube Channel. For further information about Ben Cowens data analysis, check out his website intothecryptoverse.com. Disclaimer: I am neither involved in his work nor funded by him.
The recent rise of TikTok crypto influencers, especially in the Solana Memecoin hype happening this month (3), raises the question whether the current composition of Ben Cowen’s Social Risk Indicator is becoming outdated. Since TikTok and Instagram have been gaining social media market share, the indicator may no longer fully capture the dynamic landscape of retail engagement in crypto. To keep the indicator meaningful, Cowen’s team should consider integrating social engagement numbers from more trending platforms such as TikTok and Instagram into the Social Risk Indicator, ensuring that shifts in social media activity are accurately taken into account.
Retail in the shadow of institutional investors
Since approvals of BTC ETFs at beginning of 2024, the market dynamics shifted, as Bitcoin transitioned from a retail-driven asset to one with significant institutional participation. As of today, over 1 million BTC are held in Bitcoin ETFs with a ongoing growth of the ETF segment. Given that approximately 3.7 million BTC are considered lost, means that the fraction of BTCs in ETFs is about 6%. Among the ETFs, BlackRock’s iShares Bitcoin Trust (IBIT) with 474,627 BTC holds the largest fraction. (4) In addition, Microstrategy, the largest corporate holder of bitcoin, continues to accumulate bitcoin, acquiring 51,780 BTC this week, to a Toal holding of 331,200 BTC. (5) With institutions getting involved in the game, the traditional correlation between retail interest, measured by social media activity, and market cycles may weaken. This raises the question of whether social indicators along are sufficient for predicting Bitcoin tops and bottoms in the future.
Despite the evolving crypto landscape, social risk indicators remain relevant, as tracking retail interest is still crucial for long-term, cycle-based investment decisions. However, investors should be mindful of broader market dynamics, including the growing influence of institutional players and shifts in social media trends. To improve accuracy, Ben Cowen’s team could update their indicator to emphasize the voices on currently leading social media platforms and adjust for institutional impact, ensuring it remains a valuable tool for market analysis.