How a New Crypto Metric Could Democratize a Wild Market

The cryptocurrency market, until now dominated by big investors, could see a spurt in growth as small investors compete with mutual funds and professional institutions, as outlined by Bloomberg. Smaller investors are now getting access to a new gauge launched by trading platform eToro that uses AI and language analysis to measure investor sentiment by analyzing roughly 850 million tweets a day.

On Twitter, cryptocurrency is one of the most popular topics of discussion. The new sentiment-based portfolio analyzes tweets for the latest positive or negative perceptions of digital assets through a partnership with Social Market Analytics. 

'Crypto Is Void of Valuation Metrics'

The tool could draw retail users largely left out of crypto trading and democratize the nascent industry. eToro says its retail investors now have access to its new cryptocurrency data analytics platform, TheTIE-LongOnly CopyPortfolio, through a collaboration with The TIE. 

The financial instrument is live on eToro’s trading platform, with a minimum $2,000 buy-in. There will be no additional fees for using CopyPortfolio outside of spreads on the assets traded. 

“We found that crypto is an asset class that is void of valuation metrics,” said Josh Frank, chief executive officer of The TIE, to Bloomberg. “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.” 

With the new sentiment-based portfolio, “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.

What’s Next? 

To be sure, not all are so optimistic about the new strategy of analyzing tweets. Utpal Dholokia, chair of marketing at Rice University, told Bloomberg that it would present an opportunity for traders to manipulate prices and drive them higher. 

“Crypto are niche markets, they are made up of a specialized group of investors and participants. 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 said. Instead of using it as a sole measure, Dholokia recommends using social influence as “a part of a range of different signals.”