In a seemingly fluctuating crypto market, predicting the trend becomes almost impossible. Adding to this, the prolonged bearish market towards the end of 2018 made many retail investors and hedge funds dubious about 2019.
There are various algorithms to analyze and predict the market shift, but all of these are based on past market trends and their nature. So to understand the market from a different perspective, data related to sentiment can be utilized. According to a recent survey it is found that crowd psychology plays a massive role in the price of Bitcoin. And sentiment analysis uses psychology and emotions as its fundamental data.
Sentiment analysis is a data-driven trading strategy, where the data consist of psychology and emotions of a particular community. That is, if on a particular day, a specific cryptocurrency is painted an overwhelmingly negative picture by influencers, then it’s likely that the public sentiment will have a negative trend.
The data for sentiment analysis can be gathered from social media platforms like Twitter and Facebook. Every news article or a social mention can drive the trend and direction of where the prices are heading to. Since all this information is of different format and size, it’s humanly impossible to sit and analyze each sentiment. It requires a more mechanical approach with a human touch, and that’s where AI comes into the picture. The integration of Artificial intelligence into sentiment analysis can provide a clear view of the crypto market. Artificial intelligence can help speed up the entire analysis process. The integration of AI also allows doing real-time analysis of sentiment so that market predictions can be instantaneous.
For a hedge fund to survive the ongoing crypto winter, it needs to consider implementing artificial intelligence based sentiment analysis. This will help hedge funds to take a cautious approach towards low-risk investments with a high chance of a good ROI.
A recent report published by Yale economists reveals that cryptocurrencies behave in a different way when compared to other asset groups, and this behavior could be predicted by monitoring all the investor’s attention. It has also been claimed that cryptocurrency price variation is tightly harmonized with the number of social media mentions it gets on Twitter, Google and other major online platforms.
Sentiment analysis is used to significantly enlarge the existing trading strategies, based on, technical indicators or price action, thereby providing alternative signals, which are particularly relevant for intangible assets.
Many people make a rash emotional decision while trading. This emotion can reflect a pattern. These patterns can be seen by using Artificial intelligence. AI makes it possible to monitor how sentiments and trends drive investment decision, and with that information, trading strategies can be implemented.
There are an endless amount of data generated every day. All these data holds valuable sentiment information about people related to various topics. By extracting data pertaining to cryptocurrencies and scientifically analyzing the reactions of the cryptocurrency community as a whole, the hedge funds can finally place an ear to the thumping heart of the cryptocurrency market.