There’s been a lot of hype the last couple of months on cryptocurrency. Some claim it’s the future, while others assert that it’s only a bubble. But no matter your opinion on crypto, there are two things that are certain. One, it’s still around. Despite the ups and downs in the market, people are still investing in and using crypto. And two, it’s growing in popularity. More and more people are starting crypto investments, and an increasing amount are registering for trading platforms in hopes of enlarging their profits even more.
As the cryptocurrency market is constantly changing, trading crypto is a difficult business. If traders miss a market move, they could quickly lose all of their investment or miss out on trades that make thousands. To prevent significant loss of investment and improve chances of profitable trades, it’s vital that traders understand the market. A variety of analytics, such as RSI or SMA, are helpful indicators of market moves, but there are additional analytics that can lead to important market insights, such as sentiment analysis.
While traditionally used internally by businesses, sentiment analysis offers significant insight into crypto trading. In this article, I’ll discuss the basics of sentiment analysis and its benefits to cryptocurrency traders.
What is Sentiment Analysis?
The internet provides an expansive platform where anyone can express their opinion. People are constantly posting to Twitter, Reddit, and other online forums, leaving reviews and recommendations.
Computer programmers first created sentiment analysis created to help businesses understand the public opinion towards their products, services, or brand. At the most basic level, sentiment analysis is essentially a program that combs through online content such as tweets, comments, reviews, and even videos. It analyzes the language of the content and then identifies words and phrases as either positive or negative.
For example, the statement “I loved this product! It was exactly what I was looking for!” would be categorized as positive, while the statement, “This was a complete waste of money” would be categorized as negative. For a business, understanding the sentiment behind online opinions and reviews is a valuable source of information on public sentiment towards their products or services.
While the technology behind sentiment analysis is impressive and insightful, it isn’t perfect. Human languages are incredibly complex and multifaceted, and computers don’t always interpret comments correctly as they can’t read context as well as humans. Sarcasm is especially difficult for computers to detect, but recent developments in the technology allow programs to better discern the tone of a comment.
Despite their weaknesses, most programs can interpret comments around a 70% accuracy, which is impressive considering humans themselves aren’t perfect at interpreting comments, and only accurately interpret the sentiment behind a statement about 80% of the time.
One of the primary benefits of sentiment analysis is its ability to offer insight into public opinion. Not only can it indicate what people are talking about, it indicates how they feel about it. By understanding public sentiment towards a product or company, businesses can make smart and educated decisions that can lead to significant savings or growth.
One interesting and potentially lucrative benefit to using sentiment analysis is using it to predict future growth and profitable investments. Shifts in sentiment on social media are correlated with shifts in the stock market. By understanding the sentiment towards a product, one could potentially know which companies or products are good investments.
Sentiment Analysis and Cryptocurrency
While sentiment analysis isn’t a perfect interpreter of opinion, it’s still a powerful tool for people to use. Because common sentiment can be correlated with stock shifts, it only make sense that sentiment analysis would be a powerful tool for crypto traders, as shifts in the crypto landscape determine the value of a coin.
The cryptocurrency landscape is an incredibly volatile and largely determined by public opinion. Crypto is only worth what people believe it to be, so it’s vital to understand the common sentiment towards different coins. By understanding the general attitude towards a certain currency, a trader can have a better idea of the value and potential value of a coin, which helps traders to determine successful market entries or exits.
Instead of spending hours combing through blogs and Twitter, you can get an instant read on the sentiment and volume of conversation around a coin. Here at Neuryx, we make it easy to leverage this powerful tool by combining proprietary analytics, traditional market indicators, an easily actionable system, and sentiment analysis into one powerful application to help you trade your crypto smarter.
Cryptocurrency investment is an exciting world of opportunity, growth, and potential, and represents the future. Entering the cryptosphere is as much about learning as it is investing, and the important thing is not to invest more, but to invest smarter.
Neuryx is an AI-powered crypto trading assistant that offers exclusive analytics and advanced trading tools to help you stay on top of your crypto game and trade smarter.