Research reveals how the value of cryptocurrencies is affected
A new study conducted by the Corvinus University of Budapest has found the emotions and attitudes of investors can significantly impact the value of cryptocurrencies, particularly those associated with the metaverse.
Analysing investor behaviour in the cryptocurrency market, Dr. Samet Günay and his team used two metrics to represent the overall mood or sentiment of investors toward the cryptocurrency market.
Firstly, the researchers used Google searches for “cryptocurrency” to gauge how much attention investors were paying to the market. Those with higher search volumes indicated increased interest or concern regarding cryptocurrencies.
The team also measured the emotional state of investors with a Fear-Greed Index to show whether investors were risk-adverse or risk-seeking.
The research found that the returns of metaverse tokens were significantly impacted by investor sentiment. However, this was only the case during bear markets – times of substantial market downturns.
During bear markets, the study revealed that negative emotions, like fear, can often drive investors to sell their tokens to avoid any losses. On the other hand, greed, or positive emotions may lead investors to purchase tokens in a hope to make a profit.
During bull markets or stable periods, the behaviour of investors does not have as much bearing on crypto, indicating token performances are driven more by market factors at these times.
Using Bitcoin’s performance as a benchmark to represent the overall trends and health of the cryptocurrency market, the team at Corvinus University specifically analysed the performance of five metaverse-related cryptocurrencies – WAXP, ONT, MANA, THETA, and ENJ. Over the space of four years (2018–2022), the researchers tracked their values, finding out how each token reacted to market conditions and investor behaviours.
According to Dr. Günay, the impact of investor sentiment on these tokens’ performance did not become noticeable or significant until later on in the study. “Both the Bitcoin market and metaverse tokens used in our study witnessed collapses in 2021, around March and November. However, significant causal relationships didn’t emerge and gain strength until 2022. The suggests that investor sentiment exhibits a delay in influencing the returns of the metaverse market.”
The researchers suggest that investors and policymakers be aware of the delay between shifts in investor sentiment and the impact on the market. They warn that basing actions on sentiment data without considering the lag time could result in poor decisions.
With a deeper understanding of the impact of investor sentiments, particularly during market downturns, stakeholders can be in a better position to anticipate risks and opportunities more effectively.
Image Credit: “Stock Market Crash” by danielfoster437 is licensed under CC BY-NC-SA 2.0.
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