Hedge Funds, Asset Managers Use Sentiment Analysis Algorithmic Tools to Gather Crypto Tweet Data

According to Reuters hedge funds and asset managers are seeking the help of algorithms to scrape through various social media platforms for tips on where Bitcoin and other cryptos may land next.

Weeks after Bitcoin’s price increased rapidly, it has started losing ground at an alarming rate amid the volatility state of the market. Now, hedge funds and asset managers are seeking the help of software developers to come up with mechanisms that can help them interpret as well as harness any signals that can help them know the next price of cryptocurrencies.

Speaking to Reuters the CEO of Alan Howard-owned Elwood Asset Management, Bin Ren, stated that there is a rapid interest on algos that can help in identification of price clues from various social media posts that it can be equated to

“an arms race for money managers.”

Elwood Asset Management specializes in digital assets. He said:

“It’s an arms race for money managers, very few players are able to implement and deliver it, but I believe it is highly profitable.”

Artificial Intelligence and other software-driven sentiment analysis is common in conventional financial markets. However, it is yet to become popular in the crypto market and as Reuters argues, the nature of the crypto market where the internet is a crucial aspect makes such an analysis ideal for such algo based parsing tools.

The parsing tools can also be helpful in the industry as there are no central information sources like central banks which conventionally offer economic indicators or other useful information for the investors to interpret.

According to Reuters it is an uphill task to design an algo which come up with a market-moving signal in the complicated world of social media where their posts are done in different languages. Andrea Leccese, president a New York-based investment company, Bluesky Capital, indicated that the costs of a robot that has the capacity to read and interpret tweets made in English are between $500,000 to $1 million which only accounts for development fees.

One of the major challenges of the proponents of sentiment analysis is the high number of social media platforms in different regions and countries ranging from Twitter to Reddit, the Russian developed Telegram, Line in Japan, Kakao in South Korea and Wechat in China.

For instance, according to BitInfoCharts , Reddit’s main forum, or subreddit, for bitcoin alone has 1.1 million members. Similarly, Bitcoin centric posts in Twitter range from 14,000 to 32,000 per day.

In order to extract meaningful data and information from these platforms, algos utilize what is mostly referred to as keywords as well as emotions which shows any changes on how social media users perceive various cryptocurrencies.

According to Elwood’s Ren investors who use algos can identify patterns on information which acquires traction online. He said:

“The information propagates not randomly, but through a very well-defined structure – it’s like a tree, it’s very similar to modeling the spreading of a virus.”

Should hedge funds and asset managers analyze social media activities related to cryptocurrencies to predict prices? Let us know in the comments section.

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