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Predicting the cryptocurrency market using social media metrics and search trends during COVID-19

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Abstract

Bitcoin is one of the most well-known cryptocurrencies worldwide. Recently, as the COVID-19 pandemic raged globally, a new wave of price volatility and interest in Bitcoin was witnessed. Identifying the roles played by different information sources in the emergence and diffusion of content through Internet resources can reveal the influential factors affecting cryptocurrencies’ value. This study aims to reveal the forces behind cryptocurrencies’ monetary value—the market price movements on major exchanges before, during, and post the March 2020, COVID-19 market crash. The daily prices of the two largest cryptocurrencies, Bitcoin and Ether, were obtained from CoinDesk. By integrating Google Trends data, we found that Google searches increase when the number of tweets on COVID-19 soars, with a one-period lag (one day). Furthermore, search trends have a significant impact on cryptocurrencies’ future returns such that increased (decreased) searches for a negative event indicate lower (higher) future cryptocurrency prices.

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Acknowledgements

This study was supported under the framework of an international cooperation program managed by the National Research Foundation of Korea (2020K2A9A2A1110432911 FY2022).

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Authors and Affiliations

  1. School of Business, Pusan National University, 2, Busandaehak-Ro 63Beon-Gil, Geumjeong-Gu, Busan, 46241, Korea

    Jian Mou & Jongki Kim

  2. School of Business, Singapore University of Social Sciences, Singapore, Singapore

    Wenting Liu & Chong Guan

  3. Information & Decision Sciences, University of Illinois - Chicago, Chicago, IL, USA

    J. Christopher Westland

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Appendix A: Related literature

Appendix A: Related literature

Study

Topic

Pre/post COVID-19

Cryptocurrency or stock

Data

Research method

Findings

Chen et al. [12]

Investigating the impact of fear caused by the COVID-19 pandemic on Bitcoin price

During COVID-19

Bitcoin

Hourly Google search queries on COVID-19-related keywords

Sentiment analysis

Market volatility is exacerbated by fear, with an increase in the search for COVID-19-related information. Additionally, negative Bitcoin returns and high trading volume are explained by fear regarding the pandemic. The authors found that Bitcoin failed to act as a safe haven during the pandemic

Ding et al. [25]

Using Google trends to analyze the impact of the COVID-19 pandemic on the stock market

During COVID-19

Stock market

The daily closing stock prices of a total usable sample of 1,567 firms from 37 sectors listed on the NASDAQ

Augmented vector autoregression (VAR)

Market sentiment toward the pandemic significantly impacted the stock prices of the sectors

Conlon and McGee [17]

Examining whether a Bitcoin can act as a safe haven during COVID-19

During COVID-19

Bitcoin

1. Daily price data for the S&P 500

2. Price data for Bitcoin are obtained from Coinmetrics using CM reference rates

Two-moment value at risk (VaR)

Bitcoin does not act as a safe haven, instead, its price decreased in lockstep with the S&P 500 as the crisis developed

Huang et al. [38]

To examine whether a Bitcoin can act as a safe haven during COVID-19

Pre and Post COVID-19

Bitcoin and stock

A panel dataset including closing price series of a Bitcoin, stock, and bond covering the five major countries/regions with daily frequency

Bayesian panel VAR method

The outbreak of COVID has altered the role of Bitcoin in various segmented markets except for the US

Mariana et al. [71]

To examine whether Bitcoin and Ethereum are safe-havens during COVID-19

Pre and during COVID-19

Bitcoin and Ethereum

Bitcoin and Ethereum data collected from coindesk.com, while the S&P500 and gold spot prices data were collected from DataStream

DCC-GARCH methodology

The two largest cryptocurrencies are suitable as short-term safe havens

Guo et al. [30, 31]

Comparing the contagion phenomenon of Bitcoin and other financial markets or assets pre and during the COVID-19

Pre and during COVID-19

Bitcoin and stock

1. MSCI USA index is used to measure the United States market

2. MSCI EUROPE index is used to represent the European market

3. Chinese market is denoted by the Shanghai composite index

DAG approach

The contagion effect between Bitcoin and the developed markets was strengthened during the pandemic

Shehzad et al. [81]

Is gold more favorable than bitcoin during the COVID-19 outbreak

During COVID-19

Bitcoin and gold

S&P500, US Technology Stock Market Index, French, Germany, Madrid, Italy, London, Hong Kong, Tokyo, and Shanghai Composite Index, bitcoin, and gold

Morlet Wavelet approach

This study found gold as a potential safe haven for investors of renowned stock markets such as Asia, Europe, and the US

Goodell and Goutte [28]

Co-movement of COVID pandemic and Bitcoin

During COVID-19

Bitcoin

Daily data of COVID-19 world deaths and daily Bitcoin prices from December 31, 2019 to April 29, 2020

Wavelet coherence analysis

Post-April 5, COVID-19 levels caused a rise in Bitcoin prices

Nguyen [78]

Examining the impact of the stock market on Bitcoin during COVID-19 and other uncertainty periods

Pre and during COVID-19

Bitcoin

The weekly time-series data of Bitcoin and the S&P 500 Index from January 1, 2016 to January 1, 2021

VAR (1)–GARCH (1, 1) model

Stock market shocks also influenced Bitcoin’s volatility during COVID-19 and other periods of turmoil

Guan et al. [27]

Examining market sentiments from social media to predict the stock market performance

Pre and during COVID-19

Stock market

2,000 firms listed on the NASDAQ

Augmented VAR

Market sentiments toward the pandemic have significantly influenced the price differences

Elsayed et al. [26]

Examining return and volatility connectedness between Bitcoin, traditional financial assets, and major global uncertainty measures

Pre and during COVID-19

Bitcoin and traditional financial assets

The data for Bitcoin (closing price) and traditional financial assets: Stocks (S&P 500 index), Bonds (S&P 500 bond index), the United States Dollar (broad exchange rate), Gold (spot prices), and Crude Oil (West Texas Intermediate-WTI spot prices)

Time-Varying Parameter Vector Autoregression (TVP-VAR), Dynamic connectedness approaches, and network analyses

Total spillover indices reached unprecedented levels during COVID-19 and have remained high since then. This confirms the high return and volatility spillovers across markets during the pandemic. Regarding the return spillovers, Gold is the center of the system and demonstrates safe heaven properties. Bitcoin was a net transmitter of volatility spillovers to other markets, particularly during the COVID-19 period

Wen et al. [84]

Comparing the dynamic spillover effects of gold and Bitcoin prices on the oil and stock market during the COVID-19 pandemic

Pre and during COVID-19

Bitcoin and stock

The COMEX gold futures price (COMEX), the WTI oil price (WTI), and the S&P 500 index (SPX)

Time-varying parameter vector autoregression (TVP-VAR model)

Gold is a safe haven for oil and stock markets during the COVID-19 pandemic. However, Bitcoin’s response is the opposite, and is rejected as a safe haven property

Sarkodie et al. [80]

Investigating the impact of COVID-19 on market prices of Bitcoin, Bitcoin Cash, Ethereum, and Litecoin

During COVID-19

Bitcoin, Cash, Ethereum, and Litecoin

1. Data on COVID confirmed cases (number), recovery cases (number), and deaths (number) were employed from John Hopkins’ database on COVID-19

2. Data on Bitcoin cash, Ethereum, Bitcoin, and Litecoin were collected from Coinbase, retrieved from FRED economic database

Novel Romano-Wolf multiple hypotheses

COVID-19 shocks spur Litecoin by 3.20–3.84%, Bitcoin by 2.71–3.27%, Ethereum by 1.43–1.75%, and Bitcoin Cash by 1.34–1.62%

Kumar and Padakandla [48]

Testing the safe-haven properties of gold and bitcoin in the backdrop of COVID-19

Pre and during COVID-19

Bitcoin and gold

Daily returns of Bitcoin, Gold, DJIA, CAC40, NSE50, S&P 500, NASDAQ, and EUROSTOXX from 05–01–2015 to 31–12–2020

Wavelet quantile correlation approach

Gold consistently exhibits itself as a safe haven property for all the markets except NSE in the long and short run, while Bitcoin provided mixed results

Katsiampa et al. [44]

Co-movements and correlations between Bitcoin and thirty-one of the most-tradable crypto assets

Pre and during COVID-19

Bitcoin and thirty-one major altcoins

Hourly closing prices in US Dollars and 17,544 observations for each digital asset

Diagonal-BEKK model, the Minimum Spanning Tree (MST), and Planar Maximally Filtered Graph (PMFG) methods

Apps and protocols have become more attractive to investors than pure cryptocurrencies

Bouteska et al. [9]

Examining the impact of investor sentiment on Bitcoin returns

During COVID-19

Bitcoin

Dataset of messages discussed on social media and several financial indicators

Vector autoregressive analysis

The sentiment index is a strong predictor of cryptocurrency market returns in the short term

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Mou, J., Liu, W., Guan, C. et al. Predicting the cryptocurrency market using social media metrics and search trends during COVID-19. Electron Commer Res 24, 1307–1333 (2024). https://doi.org/10.1007/s10660-023-09801-6

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