Response of BTC Market to Social Media Sentiment: Application of Cross-Quantilogram with Bootstrap

Abstract

AbstractThe cryptocurrency market is regarded as the world’s first entirely decentralized digital payment system, with no third-party influence. Hence, the advent of Bitcoin symbolizes a revolutionary occurrence in financial markets. This study looks into the relationship between Twitter-based economic uncertainty and changes in Bitcoin returns, which are considered as the dominant cryptocurrency. Using high-frequency historical daily data from March 2017 to March 2022, we used a recently introduced method called cross-quantilogram analysis to investigate Bitcoin’s behavior under various levels of uncertainty. The study created lower, middle, and upper quantiles to investigate the lag impact in time intervals such as daily, weekly, monthly, and quarterly. Twitter-based economic uncertainty appears to be a significant volatility influence, while Bitcoin returns appear to be the net volatility recipient during the daily and weekly time lags. The outcomes of this research study show a substantial causal relationship between Twitter-based economic uncertainty revealed by users of social media and how it effects the returns of Bitcoin. This effect is most noticeable for all cryptocurrencies and especially for Bitcoin at the tails of return distributions. Findings of this study shed some new insight into the significance of Bitcoin to consider as an alternative asset class in the aftermath of global financial instability and provide practical guidance for investors in developing portfolios.KeywordsCryptocurrency BitcoinSocial media Sentiment TwitterUncertaintyCross-quantilogram analysis