Recently, a multidisciplinary group of European and Asian researchers investigated whether positive cryptocurrency trading outcomes could be predicted using only emoji sentiment on social media.
Positive sentiment-associated emojis accurately predicted positive market movement, according to the preprint research paper of the team:
“The strong predictive link between high positive sentiment levels and subsequent BTC price increases suggests that optimistic social media discourse, as encapsulated by the most positively perceived emojis, acts as a barometer for market sentiment. It may reflect broader investor optimism, potentially driving buying behavior and influencing market trends.”
To ascertain the correlation between augmented trading returns and social media posts containing emoticons indicative of favorable sentiment toward cryptocurrencies, the researchers utilized X, formerly Twitter.
The group utilized GPT-4, the underlying artificial intelligence system of ChatGPT, to sentiment-process data sets containing cryptocurrency postings containing emojis.
After formulating an algorithmic approach to leverage sentiment analysis for next-day trading, the group established a straightforward procedure. If the program generated a positive emoji sentiment for a specific day, the group acquired a Bitcoin, which it subsequently divested the following day.
This strategy generated consistently positive returns that surpassed typical market trends, according to the research.
Presumably, a rocket ship emoji is frequently associated with optimistic performance forecasts, and as such, the notion that it signifies positive sentiment is well-known among the majority of the cryptocurrency community on social media.
Developing a stream of actionable data from this concept is merely the beginning of the researcher’s contributions. Additionally, they determined the optimal value for time-stepped data.
“A ‘time pace’ of 30 to 40 days,” writes the researchers, “offers a balanced window that is sufficiently long to integrate meaningful sentiment trends and short enough to remain responsive to recent shifts.”
With access to GPT-4 and approximately one month’s worth of data on the sentiment of social media emojis, the researchers achieved a competitive advantage over the market.
Several restrictions were applied. To begin with, their trading strategy needed to account for trading and other related expenses. Additionally, they conducted algorithmic testing compared to a plan that entailed daily BTC purchases followed by subsequent sales.
