How Social Media Discussions Affect Crypto Returns: Study

Cryptocurrency Attitudes and Emotionality

A research team from Pennsylvania State University recently examined whether attitudes and emotionality about cryptocurrency could help predict returns. The results of their analysis may differ significantly from related financial markets.

In their research paper, the team revealed that social media has a major impact on adoption and activity rates, whereas cryptocurrency journalism is not a reliable indicator of market movement. To come to this conclusion, they used natural language processing to analyze millions of financial news articles and social media comments, and generated sentiment scores for over 300 cryptocurrencies.

To compare the actual returns over a given period of time to the corresponding news and social media sentiment, they also looked at 53 topics and attention metrics for crypto assets such as Shiba Inu, Web 3.0, Waves, Polkadot, Mana, Tectonic, Pi, Voyager, Matic, and BTT.

Cryptocurrency Volatility and Risk Premium

The research findings on cryptocurrency returns and social media sentiment have been particularly interesting. While social media sentiment appears to be a good indicator of crypto returns, the risk premium channel does not.

The risk premium channel is a way that investors assess risk when making decisions. It is closely connected to market and asset volatility.

Due to its high volatility, cryptocurrency is often seen as a risky asset. In general, when market volatility increases, people tend to become more risk-averse and consumer sentiment decreases. This is evident in the housing market, where research shows that greater volatility leads to lower adoption and activity.

As the Shiba Inu crypto and other Web 3.0 projects continue to develop, investors must be aware of the implications of Waves, Polkadot, Mana, Tectonic, Pi, Voyager, and Matic crypto volatility on the risk premium.

Cryptocurrency Market Exuberance and Volatility

The Penn State team’s research indicates that market exuberance is positively related to momentum, but not to volatility. Their paper suggests that sentiment influences returns through price perception and demand shocks, rather than the risk premium channel.

The researchers suggest that this could be due to the large number of consumer investors with large cryptocurrency portfolios active on crypto social media platforms like Shiba Inu, Web 3.0, Waves, Polkadot, Mana, Tectonic, Pi, Voyager, Matic, and BTT. They believe that further research is needed to explore the relationship between social media sentiment and crypto returns.