News sentiment in the cryptocurrency market
We use high frequency intra-day data to investigate the influence of unscheduled currency and Bitcoin news on the returns, volume and volatility of the cryptocurrency Bitcoin and traditional currencies over the period from January 2012 to November 2018. Results show that Bitcoin behaves differently to traditional currencies. Traditional currencies typically experience a decrease in returns after negative news arrivals and an increase in returns following positive news whereas Bitcoin reacts positively to both positive and negative news. This suggests investor enthusiasm for Bitcoin irrespective of the sentiment of the news. This phenomenon is exacerbated during bubble periods. Conversely, cryptocurrency cyber-attack news and fraud news dampen this effect, decreasing Bitcoin returns and volatility. Our results contribute to the discussion on the nature of Bitcoin as a currency or an asset. They further inform practitioners about the characteristics of cryptocurrencies as a financial asset and inform regulators about the influence of news on Bitcoin volatility, particularly during bubble periods.To get more news about https://www.wikibit.com/en/data/index.html Crypto currency market, you can visit wikifx.com official website.
In recent years, Bitcoin has attracted much attention from policy-makers, investors, academics and regulators due to its rapid price appreciation. The price of Bitcoin increased markedly over the 12 months from $788 on December 17, 2016 to $19,650 one year later, experiencing an increase of 2394 %. The current debate on the nature of Bitcoin tries to determine whether the digital currency should be considered a financial asset or a medium of exchange, bringing out the need to classify cryptocurrencies as financial instruments and to study the shared characteristics they may have with other well-known financial products. This paper contributes to the literature investigating the intradaily relationship between Bitcoin and the major traditional currencies to assess whether there exists a similar reaction to news sentiment and to provide further evidence on cryptocurrency characteristics to help the debate. Particularly, we investigate how high-frequency unscheduled news releases related to Forex and Bitcoin affect returns, volume and volatility of Forex and whether Bitcoin exhibits similar responses. We provide a comprehensive study for Bitcoin including a sample period of almost seven years of 15-minute data from January 1, 2012 to November 1, 2018. We consider six major currencies against the U.S. Dollar (USD) (counter), namely the Australian Dollar (AUD), the Canadian Dollar (CAD), the Swiss Franc (CHF), the Euro (EUR), the British Pound (GBP), the Japanese Yen (JPY) alongside Bitcoin (BTC). Using Ravenpack News Analytics 4.0, we construct a sentiment index for each currency and Bitcoin and we examine how currency returns, volume and volatility are affected by the news sentiment using exogenous vector autoregressive model (VAR-X).
Our key results suggest that while Forex comoves and reacts homogeneously to news, Bitcoin behaves differently. There is evidence of a contemporaneous statistically significant relationship between foreign exchange and news sentiment such that positive (negative) news on the base appreciate (depreciate) the exchange rate, while positive (negative) news on the counter decrease (increase) the exchange rate returns. Overall, news on the base increase Forex volume. These findings do not hold for Bitcoin, where an overall low level of significance is found while testing for the contemporaneous news sentiment impact, such that only positive Bitcoin news are informative for Bitcoin returns. We then consider the impact that news sentiment have on Bitcoin one period after due to the existence of potential delays and technological advancements issues in the Bitcoin market, and find that both positive and negative news increase Bitcoin returns. This finding is exacerbated during the Bitcoin bubble periods suggesting the strong investors' enthusiasm toward the digital currency. We then focus on intra-day cryptocurrency cyber-attacks and fraud news sentiments and find that such news dampen enthusiasm, reducing volatility in conjunction with negative Bitcoin returns upon arrival of negative cyber-attack news. Results are robust to tests for commonality and multicollinearity.
Our results are particularly relevant for practitioners and regulators. On one side, practitioners are generally concerned about risks and other characteristics of a potential investment into cryptocurrencies. On the other side, regulators aim to better understand possible systemic risks of cryptocurrencies as well as other issues, such as cyber-criminality and fraud. Our results provide insight for both groups of stakeholders to better understand the characteristics of cryptocurrencies.
The remainder of this paper is organized as follows: Section 2 provides a short background on Bitcoin and the related literature on the topic. Section 3 describes the data collection. Section 4 presents the sentiment index construction and the empirical model, while Section 5 presents a discussion of the main results. Section 6 focuses with a numbers of robustness tests. Finally, Section 7 concludes the study summarizing the findings and proposing further analyses.
