From Whales to Waves: Social Media Sentiment, Volatility, and Whales in Cryptocurrency Markets

This paper examines the relationship between cryptocurrency market dynamics and investor sentiment, employing advanced techniques like time-variant Granger causality and asymmetric time-varying parameter vector autoregression (TVP-VAR) frequency connectivity. We create unique sentiment analysis tools, including a custom cryptocurrency sentiment lexicon, to deeply analyze content in the cryptocurrency domain, particularly focusing on investor discussions and viewpoints. Our findings demonstrate a significant, evolving link between market sentiment and cryptocurrency movements. A key observation is that the volatility of shock transmission is tightly connected to major market events, often influenced by large-scale investors, or “whales”. Our study indicates that market sentiment consistently affects both short- and long-term cryptocurrency volatility, underlining the crucial influence of investor sentiment in driving the dynamics of the cryptocurrency market. This underscores the importance of understanding investor sentiment for predicting and navigating the cryptocurrency market.