Cryptodatum on Cognitive Bias in Cryptocurrency: Readability Has Positive Impacts


Cryptodatum.io founder Gerard Martinez published the results of a study showing the readability of a cryptocurrency’s ticker symbol correlates with positive higher returns. In laymen’s terms, the abbreviation of a cryptocurrency can make a difference in how user friendly and remember it is, thereby increasing its use and buy in.

The hypothesis of this study is based on a principle term in Daniel Kahneman’s book “Thinking Fast and Slow” known as “cognitive ease”. Khaneman actually devotes an entire chapter to the pleasure of this principle, explaining:

“…easily pronounced words evoke a favourable attitude. Companies with pronounceable names do better than others for the first week after the stick is issued, though the effect disappears over time. Stocks with pronounceable trading symbols (like KAR or LUNMOO) outperform those with tongue-twisting tickers like PXG or RDO — and they appear to retain a small advantage over some time. A study conducted in Switzerland found that investors believe that stocks with fluent names like Emmi, Swissfirst and Comet will earn higher returns than those with clunky labels like Geberit and Ypsomed.”

It basically describes an idea that a product’s or company’s readability leads to better remembrance of it which translates to a familiarity we are more comfortable with, increasing our interest in purchasing and other things associated with it. This is not, however, the end all of what draws us to something or to purchase something but a contributor- its readability has a casual relationship to its memorability.

“Zajonc called this phenomena as the mere exposure effect. […] [He] argued that the effect of repetition on liking is a profoundly important biological fact. To survive in a frequently dangerous world, an organism should react cautiously to a novel stimulus, with withdrawal and fear. Survival prospects are poor for an animal that is not suspicious of novelty. However, it is also adaptive for the initial caution to fade if the stimulus is actually safe. The mere exposure effect occurs […] because the repeated exposure of a stimulus is followed by nothing bad. Such stimulus will eventually become a safety signal, and safety is good.”

A total of 114 cryptocurrencies in Martinez’s study were used, with all of them listed on crypto exchange Binance. There were two main criteria: the ticker symbol must be three letters long, and they much trade against bitcoin (BTC).

He then defined readability of the ticker symbol into two classification: it must have one vowel out of the three letters and it must have one vowel in the centre of the three letters. After grouping based on these classifications, the 1-hour candlesticks were retrieved for week one after its listing on Binance. For those of you who are unfamiliar with stock graphs, candlestick refers to the value of the stock in question in the form of a sort of tall rectangle on a graph so a 1 hour candlestick is basically an hourly review on the values of that cryptocurrency.

Using this data, he statistically assessed the correlation of returns over time with the readability of the tickers. It was shown that there was a higher return for the readable class of cryptocurrencies than the unreadable class. However, within the readable class itself, the two classifications showed a marginal difference between each other, with the vowel in the middle showing better returns only to decay that head start over time.

Martinez was able to show that the study corroborated the hypothesis but only to an extent. While the vowel grouping showed broadly large returns than the no-vowel grouping, the difference was small, showing a three-point statistical significance.

For those interested, The Associated Press Stylebooks and Briefing Media Law now has a section on cryptocurrencies with a popular standard on naming them. For a more comprehensive breakdown of data, visit towardsdatascience.com.

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