The new tool uses Twitter to analyze the sentiment of the cryptocurrency market.
The cryptocurrency market, known as one of the most virulent discussion topics on Twitter, will now have a new tool on eToro to help measure investor sentiment using tweets.
On Tuesday, the eToro trading platform launched a portfolio based on market sentiment that uses tools with artificial intelligence to analyze Twitter and get the latest positive and negative perceptions about cryptocurrencies.
EToro retail investors now have access to the TIE Long Crypto Solo Portfolio (TIE-LongOnly CopyPortfolio), through a collaboration with The TIE, a cryptocurrency data analysis platform that, he says, has access to 850 million daily tweets through a partnership with Social Market Analytics.
“We found that cryptocurrencies are a class of assets that is devoid of valuation metrics,” said TIE CEO Josh Frank. “With cryptocurrencies, the only thing that really moves is supply and demand, so we set out to develop a sophisticated solution for investment funds, to help them value and trade this class of assets.”
The portfolio uses machine learning and natural language processing technology to scan tweets and assess relevance, and then assign them a feeling score. The strategy focuses on cryptocurrencies with comments that become increasingly positive on Twitter, which leads to a portfolio readjustment based on an algorithm, once a month.
This tool is part of eToro’s goal of helping retail investors compete with mutual funds and professional institutions, democratizing the cryptocurrency market, the company said. Apart from the commissions for the trade of the assets, no additional commissions are included for using the CopyPortfolio.
“The end result is that retail investors will have the opportunity to invest using a strategy that was previously only available for investment funds,” said the managing director of eToro U.S. Guy Hirsch
Utpal Dholakia, the head of marketing at Rice University specializing in pricing strategies, said analyzing tweets about cryptocurrencies to invest in these could contribute to a cycle, which would make it easier for merchants to raise prices. In this regard he said:
“Cryptocurrencies are a niche market, they are made up of a group of investors and specialized participants. There is usually a lot of social influence in buying behaviors. Potential investors generally tend to observe the behavior of other investors to decide if they should buy a particular cryptocurrency.”
Dholakia also questioned whether the tool would access enough tweets to correctly assess the market.
According to TIE, about 50,000 tweets about cryptocurrencies are posted on Twitter every day from accounts not managed by bots. About 50% of the published teets are about Bitcoin.
“I would use social influence technology as part of a range of different signals,” Dholakia said.
The new feature of eToro comes in the middle of a few hard weeks for cryptocurrencies, which saw the price of bitcoin drop below USD 10,000 and quickly lost another USD 2,000 in value.
Even so, eToro hopes that more information in general will help retail investors to enter the cryptocurrency market.
“Many people are curious about cryptocurrencies,” said Hirsch. “We believe that with a tool like this, investors will be much more comfortable.”
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