Seeking out indicators among Tweets to further bolster cryptocurrency technical analysis was a resourceful achievement for scholars at the Southern Methodist University (SMU) Data Science Review center, as they uncovered a correlation between price action and volume of cryptocurrency related Tweets on Twitter as with Search Volume Index such as Google Trends.
The research, titled ‘Cryptocurrency Price Prediction Using Tweet Volumes and Sentiment Analysis’, was conducted to assess whether or not Twitter had a role in the price actions of cryptocurrency markets using Bitcoin and Ethereum related Tweets. The premise for this hypothesis was founded upon the basis that in the traditional market, web-based search data could be used to make predictions of several macroeconomic statistics including automobile sales and unemployment rates, thereby constructing fundamentals for an investment strategy. In this case, Twitter was thought to be an excellent resource to gather text data on crypto sentiments as well as their influence on the market.
According to the report, citing researcher Ladislav Kiroufek who found that Bitcoin is a unique asset in that its price behaves in ways similar to both a standard financial asset and a speculative one, this makes the asset a rather complex utility.
One of the major challenges for cryptocurrency participants is volatility, such that a growing concern of uncertainty continues to plague both investors, traders, and ultimately wider adoption. Most cryptocurrencies essentially lack substantial footing in the area of fundamentals, therefore, the way to go is to leverage all the available technical analysis to maximize positions – either as a trader or an investor.
SMU’s study involved using Twitter’s API and a Python library called Tweepy to collect and store Tweets which mentioned Bitcoin or Ethereum. The approach further assessed price action dynamics through correlative indexing with the volumes of relevant Tweets.
The research concluded that in contrast to the findings in Google Trends and crypto price assays, sentimental Tweets were less effective for indexing future cryptocurrency price changes in an environment in which prices were falling. However, Tweet volumes succinctly correlated with prices during rising and falling times. Moreover, sentimental Tweets are heavily biased such that even when prices are falling, positive Tweets are often orchestrated by mainly those with personal interest vested in the cryptocurrency, and hence, makes them poor markers for future price indexing.
In the early days of cryptocurrency unveiling, sentimental Tweets may have had a role to play in adoption, whereby fear of missing out (FOMO), and price-dump events as revealed during fear, uncertainty, and doubts (FUD) were more prone in the space. Prominent figures in the cryptocurrency space such as tech mogul John McAfee and Fundstrat’s Bitcoin permabull Thomas Lee have often used their influence to steer the industry’s rudder towards a positive outlook, regardless of market conditions.
It behooves one to reflect on the evolving state of affairs in the industry, and perhaps, as the industry continues to mature into a more sustainable ecosystem, strong fundaments may once again be reflected in the events of unbiased, yet varied sentimental analysis.
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