Brokerage firm eToro has brought a new tool to the market that’s supposed to help investors crack the code of investing in cryptocurrencies such as bitcoin – crypto Twitter. In a recent blog, eToro announced that it is partnering with cryptocurrency information service provider TIE,…
Brokerage firm eToro has brought a new tool to the market that’s supposed to help investors crack the code of investing in cryptocurrencies such as bitcoin – crypto Twitter.
In a recent blog, eToro announced that it is partnering with cryptocurrency information service provider TIE, which uses algorithms based on crowd-driven sentiment to develop trading strategies.
The brokerage firm points out that TheTIE-LongOnly CopyPortfolio will open trades on the basis of positive Twitter sentiment. The machine learning-powered algorithm will analyze over 850 million tweets daily to gauge cryptocurrency and bitcoin sentiment.
What’s more, eToro claims that the crypto Twitter-based trading strategies have led to returns of 281 percent after fees in the past two years. The annualized return of the trading strategy is 123 percent, which outpaces the 29 percent return delivered by an equally-weighted basket of identical underlying crypto assets.
eToro claims that the algorithm has also beaten bitcoin’s 41 percent return over the past two years. So, the premise of the Twitter-based investment strategy looks promising given the track record over the past couple of years. But what’s the reason why this strategy seems to be working so well so far?
Cryptocurrencies such as bitcoin are relatively new. So the world seems confused about the characteristics of bitcoin and other cryptocurrencies, which was originally meant to be a method of peer-to-peer electronic cash system for making online payments.
But the general public has brought store of value into the equation, and prominent investors have even equated bitcoin to gold.
This indicates that the fundamentals of cryptocurrencies are still in their nascent stages, and people don’t have much idea as to what’s driving the price of bitcoin. So far, it has been believed that strong institutional demand will boost the price of bitcoin and other cryptocurrencies, nut the recent crash in the price seems to indicate otherwise.
Some believe that bitcoin is a hedge against macroeconomic uncertainty, but that argument seems to be losing ground in light of the recent price action and the raging U.S.-China trade war. This is why analysts at eToro have come to the conclusion that bitcoin and other cryptocurrencies are being driven by sentiment and perception, as they don’t have any set fundamentals just yet.
As a result, the brokerage firm has brought a new tool to the market that will help investors gauge sentiment in bitcoin and other cryptocurrencies. Guy Hirsch, the U.S. managing director at eToro, explains:
In traditional markets, retail investors have historically lagged behind the ‘smart money’ when it comes to the data and tools available to them. This puts individual investors at a major disadvantage. In the spirit of crypto and decentralized technology, we believe that offering institutional-grade tools to every investor will level the playing field and democratize investing.
The track record advertised by eToro suggests that the strategy of gauging Twitter sentiment while investing in bitcoin and cryptocurrencies could be working. But investors need to be cautious and do their own due diligence before going for any such investing tool that promises big returns.
This article was edited by Samburaj Das.