The world of cryptocurrencies can be daunting, with most of the data on the market’s sentiments not being readily available. Despite the market being worth hundreds of billions of dollars, most are private investors. This has led many trading firms to think outside the box when it comes to collecting data on the market. For some, social media holds all the answers.
Crypto hedge funds have been engaged in an arms race for algorithms that can scour the social media arena and predict the market’s movements. According to a report by Reuters, these algorithms have a widespread presence in all the major platforms, from Twitter and Reddit to more regional platforms such as Line and WeChat.
Known as sentiment analysis, this method of data collection is used in traditional markets such as foreign exchange markets. However, in the crypto market, its significance is more pronounced given the opaque nature of the market. Furthermore, cryptos are more reliant on online sentiments than many other assets. After all, Bitcoin was first spread online via chatrooms and forums.
Social media data collection is however quite a challenge for the firms that use it. One of the challenges that it faces is the high costs associated with purchasing a bot that can analyze all the information availed. Speaking to Reuters, Bin Ren, CEO of Elwood Asset Management revealed that while it’s profitable, only a few deep-pocketed players can afford to install and maintain such a system.
Andrea Leccese, the president of New York based investment firm Bluesky Capital told the outlet that the cost for a bot that could scour Twitter in English ranged between $500,000 and $1 million. Most of this money is spent on hiring developers with the required skills.