The crypto market, known as one of the most rabid topics for discussion on Twitter, is getting a new tool to help gauge investor sentiment — using tweets.
On Tuesday, the trading platform eToro launched a sentiment-based portfolio that uses AI tools to analyze Twitter for the latest positive or negative perceptions of digital assets.
eToro’s retail investors now have access to TheTIE-LongOnly CopyPortfolio, through a collaboration with The TIE, a cryptocurrency data analytics platform that says it has access to 850 million daily tweets through a partnership with Social Market Analytics.
“We found that crypto is an asset class that is void of valuation metrics,” said Josh Frank, chief exeucitve officer of The TIE. “With crypto, the only thing that really moves it is supply and demand, so we set out to develop sophisticated solutions for hedge funds to help value and trade the asset class.”
The portfolio uses machine learning and natural language processing technology to scan tweets and assess relevance, then assigning it a sentiment score. The strategy allocates to cryptocurrencies with conversations that are becoming increasingly positive on Twitter, rebalancing algorithmically once per month.
The tool is part of eToro’s goal to help retail investors compete with mutual funds and professional institutions, democratizing the crypto market, the firm said. Other than spreads on the assets traded, there are no additional fees for using the CopyPortfolio.
“The end result is that retail investors will have the chance to invest using a strategy that was previously only available to hedge funds,” said Guy Hirsch, U.S. Managing Director of eToro.
Utpal Dholakia, the chair of marketing at Rice University who specializes in pricing strategies, noted that analyzing tweets about crypto to invest in crypto could contribute to a cycle, making it easy for traders to drive up prices.
“Crypto are niche markets, they are made up of a specialized group of investors and participants,” he said. “There tends to be a lot of social influence in the buying behaviors. Potential investors often tend to look for other investors’ behaviors to decide if they should buy a particular cryptocurrency.”
He also questioned whether the tool will access enough tweets to accurately assess the market.
According to The TIE, about 50,000 tweets on cryptocurrency are posted on Twitter each day by non-bot accounts. About 50% of those are about Bitcoin.
“I would use social influence tech as part of a range of different signals,” Dholakia said.
The new feature comes amid a tough few weeks for digital assets that saw Bitcoin drop below $10,000 and quickly lose another $2,000 in value.
Still, eToro is hoping more information in general will help retail investors enter the cypto market.
“A lot of people are crypto-curious,” Hirsch says. “We believe with a tool like this, they will be much more comfortable.”