As an ever-increasing number of people turn to crypto trading in favour of (or as well as) stock market trading, it’s important to understand that the two markets operate very differently on a fundamental level.
When you purchase shares of stock traded on the stock market, you are essentially buying ownership in a company. Thus stock market trends are inherently linked to the likelihood of companies’ success and growth.
Cryptocurrencies, however, most often do not represent anything material. Popular cryptocurrencies such as Bitcoin simply represent a store of value. They are not associated with ownership or stake in any business, so predicting the crypto market is an entirely different science that leaves stock brokers baffled.
Crypto trading is overwhelmingly influenced by supply and demand. In order to predict a crypto project’s success, you need to understand what influences investor demand and monitor the drivers. And to do that, investors are turning to AI.
Who Are The Investors?
The crypto market has seen a surge in retail investors with little to no experience in investor trading. There’s a very low entry barrier when it comes to crypto investment, it’s theoretically open to almost everyone, but crypto investment still tends to attract specific personality profiles.
Studies have found that investors tend to be more open, seek novel experiences, and score highly in overconfidence (characterised by scoring lower in agreeableness and higher in extraversion).
All this is perhaps no surprise. Given the volatility of the crypto market, and the fact that it’s only been around for 12 years, it doesn’t typically attract cautious personality types.
As well as attracting these personality types, the market is in turn shaped by them. Understanding what affects investor decision-making aids our understanding of the market and enables us to make more accurate crypto market predictions.
It’s also important to acknowledge that the profile of your average crypto trader may well change.
What Drives Demand?
The crypto market is highly reactive. World events, crypto forums and Elon Musk’s Tweets can make or break crypto projects, create windfalls one minute and send them spiralling the next.
There is a strong online culture and community around crypto trading and it has been predicted that almost 90% of crypto movement is affected by herd instinct, meaning that their decisions directly relate to what they believe others in the community are doing.
Investors seek news and advice from these various sources around the clock. Driven by a fear of missing out (FOMO) many investors continuously monitor conversations and posts and make decisions accordingly. A study found that investor emotions and sentiment expressed on forums correlate with price fluctuations. And unlike the stock market, the crypto market never closes, and never sleeps.
This poses a major challenge for those attempting to monitor drivers. There is an immense amount of relevant information continuously being created across disperse channels. Searching, filtering and processing all data from News sites, Twitter, Reddit and numerous forums would take many long man-hours, by which time, the information would be outdated.
But advancements in AI technology are helping to address this challenge, facilitating accurate and timely crypto market predictions.
Monitoring The Crypto Community With AI
Natural Language Processing (NLP) is a component of Artificial Intelligence that has important implications on how computers make sense of human communication and human decision-making.
Think about the kind of data that is generated on crypto news sites and forums: written text. Human language is complex, nuanced, poetic, and at times illogical. We use humour, sarcasm, idioms, metaphors, exaggeration and countless other devices to help us express ourselves. Despite the many advances in AI, understanding human language is still challenging for many AI models.
At Symanto, we use state-of-the-art NLP models to provide more accuracy in interpreting human language than ever.
Symanto’s market-leading NLP technology can process thousands of data entry points within minutes, accurately measuring emotion and sentiment and tagging written text with relevant topics.
With Symanto you can monitor multiple channels to get an overview of which cryptocurrencies are most discussed, which score highest on sentiment, and conversely, which could pose a problem for your portfolio. Traders are already utilising the information generated from NLP to increase profits, and mitigate risk.
At Symanto, we offer personalised self-service, on-demand platforms, or you can easily incorporate our technologies into your existing systems.
Inform Your Investments With Symanto
To find out more about how Symanto NLP technology helps investors to make predictions, increase profits and mitigate risk in a volatile market, get in touch or book your free personalised demonstration today.