Pennsylvania State University researchers conducted a study to investigate the correlation between social media, attitudes, emotions, and the cryptocurrency market. The results of their research challenge traditional assumptions associated with similar patterns observed in other financial markets.
The research paper highlighted the importance of social media platforms in shaping cryptocurrency adoption and activity levels. The most remarkable discovery was that sentiment expressed on social media platforms robustly predicted crypto returns, while sentiment from news media had no effect.
The research team examined a large dataset comprising millions of financial news articles and social media comments. Through natural language processing techniques, they generated sentiment scores for 53 different topics and attention metrics for over 300 cryptocurrencies.
The researchers compared the returns observed during a certain timeframe with the corresponding sentiment extracted from news and social media sources. They concluded that social media sentiment significantly predicts crypto returns, while sentiment from news media does not.
The results of the study additionally revealed that market exuberance positively impacted momentum while exerting minimal influence on volatility. The team suggested further research exploring the relationship between social media sentiment and cryptocurrency returns.
Technology is being used to analyze sentiment in the cryptocurrency market. Social Market Analytics (SMA) utilizes machine learning and natural language processing technology to analyze 850 million tweets daily, aiming to determine sentiment regarding cryptocurrencies.
Investing in the coins with the highest daily sentiment and holding them for one day from the beginning of 2021 until July 2022 yielded a return of 1,907%. On the other hand, investing in the top 20% of the most popular currencies during this period resulted in gains that were over 20 times higher than Bitcoin and four times greater than Ethereum.
