Abstract
The recent extreme volatility in cryptocurrency prices occurred in the setting of popular social media forums devoted to the discussion of cryptocurrencies. We develop a framework that discovers potential causes of phasic shifts in the price movement captured by social media discussions. This draws on principles developed in healthcare epidemiology where, similarly, only observational data are available. Such causes may have a major, one-off effect, or recurring effects on the trend in the price series. We find a one-off effect of regulatory bans on bitcoin, the repeated effects of rival innovations on ether and the influence of technical traders, captured through discussion of market price, on both cryptocurrencies. The results for Bitcoin differ from Ethereum, which is consistent with the observed differences in the timing of the highest price and the price phases. This framework could be applied to a wide range of cryptocurrency price series where there exists a relevant social media text source. Identified causes with a recurring effect may have value in predictive modelling, whilst one-off causes may provide insight into unpredictable black swan events that can have a major impact on a system.
Highlights
Social media discussion forums involve hundreds of thousands of subscribers (Comben and Rivet, 2019; Knittel and Wash, 2019) and, as in the case of Reddit subreddits, may use moderators to ensure focus on a specified theme (r/Bitcoin, 2019; r/ethereum, 2019)
Whilst ether prices fell from 5 May to mid-December 2018, bitcoin prices recovered upon falling to 6,000 US Dollars (Cuthbertson, 2019) (29 June and 14 August 2018) and only fell below this level after four months
Approaches from healthcare epidemiology are deployed that facilitate this move from observing how word (Burnie and Yilmaz, 2019b) or topic (Burnie and Yilmaz, 2019a) interest changed across phases in price to identifying the potential causes of these phasic shifts
Summary
Social media discussion forums involve hundreds of thousands of subscribers (Comben and Rivet, 2019; Knittel and Wash, 2019) and, as in the case of Reddit subreddits, may use moderators to ensure focus on a specified theme (r/Bitcoin, 2019; r/ethereum, 2019). We introduce a framework for analysing the association between changes in social media discussions and shifts in the movement of a related cryptocurrency price series. We evaluate this framework through the insights it provides when applied to bitcoin and ether prices across 2017–18. If an event occurs as price changes, that event could be driving the change in price, but a reasonable alternative explanation is that the event is in response to the change in price To exclude the latter possibility, cause must come before effect as the future cannot affect the past (Bradford Hill, 1965; Granger, 1980; Ioannidis, 2016). Seven studies have found a higher Google search
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