Causality between Sentiment and Cryptocurrency Prices

TL;DR

This paper explores how narratives derived from Twitter sentiment and topic modeling influence cryptocurrency prices, linking consumer behavior and economic narratives through innovative text analysis methods.

Contribution

It introduces a novel technique combining topic modeling and sentiment analysis to identify crypto-related narratives and their impact on prices.

Findings

Strong link between narratives and crypto prices

Identified key narratives influencing market dynamics

Connects Narrative Economics with social media analysis

Abstract

This study investigates the relationship between narratives conveyed through microblogging platforms, namely Twitter, and the value of crypto assets. Our study provides a unique technique to build narratives about cryptocurrency by combining topic modelling of short texts with sentiment analysis. First, we used an unsupervised machine learning algorithm to discover the latent topics within the massive and noisy textual data from Twitter, and then we revealed 4-5 cryptocurrency-related narratives, including financial investment, technological advancement related to crypto, financial and political regulations, crypto assets, and media coverage. In a number of situations, we noticed a strong link between our narratives and crypto prices. Our work connects the most recent innovation in economics, Narrative Economics, to a new area of study that combines topic modelling and sentiment analysis to relate consumer behaviour to narratives.