Journal #49: ALTERNATIVE CAPITAL MARKETS

BEHAVIORAL BASIS OF CRYPTOCURRENCIES MARKETS : EXAMINING EFFECTS OF PUBLIC SENTIMENT, FEAR, AND UNCERTAINTY ON PRICE FORMATION

  • Published: 29 April 2019

CONSTANTIN GURDGIEV | Trinity Business School, Trinity College Dublin (Ireland) and
Middlebury Institute of International Studies at Monterey (CA, USA)
DANIEL O’LOUGHLIN | Trinity Business School, Trinity College Dublin (Ireland)
BARTOSZ CHLEBOWSKI | Trinity Business School, Trinity College Dublin (Ireland)

In recent years, cryptocurrencies have emerged as an exciting, innovative, and highly unorthodox asset class, primarily used for investment and trading purposes by globally-distributed investors. Although cryptocurrencies have attracted significant academic attention, there are currently no credible universally-accepted methodologies for determining their prices and returns.
 
This study explores the use of sentiment analysis to model the effects of four different categories of sentiments towards the cryptocurrency markets to predict the direction of price: positivity/negativity (towards the underlying technology, development, and price of each cryptocurrency) and fear, uncertainty, and bullishness/bearishness in the financial markets.
 
Investor sentiment is shown to successfully predict the price direction of cryptocurrencies, indicating that there is a potential for herding and anchoring biases among investors in crypto assets. Moreover, our analysis shows that cryptocurrencies can be used as a hedge against the stock market during times of market uncertainty, though not necessarily during times of investor fear.