When I was finishing my undergraduate degree and was required to complete a statistical analysis course at university, one of the first things our professor told us was correlation does not equal causation. And to drive this point home, he gave us a ridiculous example of two very unrelated things that could be shown to have a correlational relationship. What that typically means is something like A increases as B increases. However, there are certain data points that you can draw causal inferences from very easily. The example he used was from a joke statistical analysis on the use of parachutes and surviving a fall from an airplane. We can tell at first glance why those two data points are causally related. I found an interesting XRP substitute for the parachute example on cointelegraph. The headline is: XRP Price and Volume Linked to Twitter Activity, New Data Reveals. When I read the title, it seems to suggest that the XRP price and volume are, through some causal mechanism, linked to the amount of Tweeting XRP fanatics carry out. But the author doesn’t explicitly suggest a causal link in the body of his article. He documents a “small significant” correlation between the price of XRP and the number of XRP related tweets and notes a stronger relationship between tweets and XRP volume. Where the author goes off the rails is the concluding statement of his article. He states: “Looking forward, investors should be aware of the consistency of these relationships as the year moves forward and pay attention to social metrics in the case of XRP.”
So, savvy investors should watch the Twitter metrics, and when they see these spike, they can be reasonably certain the price is going to go up. But why? Why are these two data metrics linked in this manner? Hypothetically, it could indicate a pump and dump. When an individual or group wants to pump the price of a stock or token, they take to social media and start a tweetstorm and try to make the price spike. But that seems like more of a risk for a smaller digital asset than XRP, as the unsavory characters would need a lot of money to do this to a top 3 rank crypto like XRP. The immediately obvious cause – similar to parachutes slowing someone falling out of a plane – is that, as the price and volume begins to go up, XRP fanatics on Twitter get excited and start tweeting. How useful is this information to potential investors? It is utterly and completely useless. But it probably got a few clicks.