Study Investigates How Tweets Influence Cryptocurrency Market Behaviour

https://www.wittenborg.eu/study-investigates-how-tweets-influence-cryptocurrency-market-behaviour.htm

Parsa Motamedi’s Master’s Thesis Analyses Popular Cryptocurrency Cardano

In a world where both cryptocurrencies and Twitter are immensely popular, there is a high chance that there would be a mutual relationship between them. Having considered this possibility, Parsa Motamedi, who recently obtained an MBM degree in Entrepreneurship & Innovation, decided to investigate this phenomenon for his master’s thesis.

Motamedi, who pursued his programme at Wittenborg’s Munich study location, focused his analysis on the correlation between the tweets by US opinion leaders and the market behaviour for cryptocurrency Cardano.

“For me, this is a relevant topic of study because nowadays a lot of people just want to make easy money, and they want it to be automatic. And when it comes to social media, Twitter is really powerful; it is used with such high frequency and raw emotion, and people really consider it their diary or their personal blog. We all love to find the correlations between things, and that is really fascinating to me, the way everything is connected and how we can see that on a scientific level and on a deeper level,” he highlights.

According to the researcher, Cardano was chosen for the thesis because, despite being one of the top cryptocurrencies in terms of market capitalisation, very few studies have been conducted on it.

“I did look into Cardano a few years back, and I had a strong impression of this cryptocurrency because its founder made some YouTube videos that were kind of lectures and he was really passionate about his work. Later, I got into cryptocurrency investment and I noticed that the followers of Cardano are a little different. They are a community, and they identify and relate to each other. So, I realised that this would be a unique topic for my research.”

To conduct his study, Motamedi identified the 20 most popular Twitter profiles that posted about Cardano – the cryptocurrency’s opinion leaders – and conducted an automated sentiment analysis of 36,279 tweets published by them. Later, he compared the average sentiment (positive or negative) of these tweets to the currency's closing prices and its daily volatility – that is, the fluctuation in prices – on the corresponding dates.

Although the research found no correlation between the average sentiment on Twitter and Cardano’s closing prices, it did identify a correlation between the average sentiment and the cryptocurrency’s volatility. “I observed that the more positive the sentiment, the less volatility there is. In addition to that, the volume of tweets has a positive effect on the price of the cryptocurrency – the more tweets there were, the higher the price was. And the volume of tweets also influenced the volatility on a seven-day period but not on a 30-day period,” Motamedi explains.

According to him, these findings can be useful for investors and traders. “If you're a trader or an investor and you see that there’s a lot of heated discussion going on about a cryptocurrency on Twitter, you know that there’s going to be volatility. So, my research shows that you can observe these trends by looking at a small group of people – the opinion leaders – rather than the whole population. This is particularly useful for investors who use automated systems, because the more data you want to analyse, the more computing power you need, which increases your costs.”

Asked about his plans for the future, Motamedi, who is originally from Iran, says he likes living in Germany, but is also open for opportunities in other countries. “I am currently working for my school’s IT department, and I configured and manage their Customer Relationship Management (CRM) system. I would like to go into an IT management role and grow my managerial and technical skills, and I would also like to build software and help teams build software,” he points out.