Does Sentiment Impact Cryptocurrency? | Semantic Scholar (2024)

FAQs

Does sentiment impact cryptocurrency? ›

Bitcoin sentiment has significant power in predicting the Bitcoin prices after controlling for the relevant factors. There is also evidence that the sentiment of the dominant cryptocurrency, i.e., Bitcoin, influences the price of other cryptocurrencies.

Results show that Bitcoin behaves differently to traditional currencies. Traditional currencies typically experience a decrease in returns after negative news arrivals and an increase in returns following positive news whereas Bitcoin reacts positively to both positive and negative news.

A big part of the answer lies in understanding market sentiment. This sentiment reflects the collective mood and attitude of investors in the cryptocurrency space. It's like a weather vane showing which way the wind is blowing in the market – are investors feeling bullish or bearish?

About Dataset

The selected dataset is based on the tweets of different users along with their sentiments. BTC tweets sentiments dataset is generated by collecting the tweets about Bitcoin. Here we will use the BTC dataset for the prediction of tweets sentiment by using the deep learning model.

Bitcoin's price is primarily affected by its supply, the market's demand, availability, competing cryptocurrencies, and investor sentiment.

Moreover, unlike traditional assets, cryptocurrencies are not driven by economic fundamentals but move with investor sentiment (Burggraf et al., 2020, Bouri et al., 2021).

Sentiment analysis provides an effective way to evaluate written or spoken language to determine if the expression is favorable, unfavorable, or neutral, and to what degree. Because of this, it gives a useful indication of how the customer felt about their experience.

Some of the most popular ones include: Social Media Sentiment Analysis: Social media platforms like Twitter and Reddit play a crucial role in shaping the sentiment of the crypto market. By analyzing the sentiments expressed in these platforms, traders can gain valuable insights into market trends and investor opinions.

Sentiment indicators can be relevant for both short-term and long-term trading. Short-term traders may use them for intraday decisions, while long-term investors can incorporate sentiment analysis for portfolio management and identifying entry points over extended periods.

A “risk on” mood refers to traders' willingness to make riskier trades. In a “risk on” environment, traders and investors feel more confident and will seek higher returns by buying “risky assets” and selling”safe haven” assets.

What is the best sentiment indicator? ›

There are several sentiment indicators used in forex trading, such as the Commitment of Traders (COT) report, the Fear and Greed Index, and the VIX volatility index. However, the most widely used and considered to be the most accurate sentiment indicator is the Speculative Sentiment Index (SSI).

Sentiment score is measured based on the frequency of positive and negative language used by customers during their interactions. If the sentiment score is below 50%, it indicates that the customer experience is mostly negative, while a score above 80% implies a positive customer experience.

Setting a baseline sentiment accuracy rate

When evaluating the sentiment (positive, negative, neutral) of a given text document, research shows that human analysts tend to agree around 80-85% of the time. This is the baseline we (usually) try to meet or beat when we're training a sentiment scoring system.

CoinGecko is one of the best crypto analysis tools that offers comprehensive data on digital currencies. You can use it to gain a deeper understanding of individual coins and their underlying fundamentals.

A sentiment analysis solution categorizes text by understanding the underlying emotion. It works by training the ML algorithm with specific datasets or setting rule-based lexicons. Meanwhile, a semantic analysis understands and works with more extensive and diverse information.

Crypto sentiment analysis involves evaluating public perceptions of cryptocurrencies through monitoring social media and news sentiment. Also termed 'opinion mining', it helps traders gauge market sentiment and understand how other investors are feeling about a particular coin or category.

This suggests that the sentiment in the crypto market is currently bearish. To estimate whether the cryptocurrency market is currently leaning bearish or bullish, we consider a number of technical indicators, including moving averages and oscillators. Here is a selection of the most important indicators we're tracking.

Additionally, Twitter sentiment has been shown to be a persistent and robust predictor for most cryptocurrency returns, indicating its superiority over Google-based sentiment proxies.

If cryptocurrencies become a dominant form of global payments, they could limit the ability of central banks, particularly those in smaller countries, to set monetary policy through control of the money supply.