28th May 2021
Crypto Sector’s Performance
Tie research conduct a statistical analysis on the performance of each sector so far this year, and the drivers attributed to it. They divide all tokens into five sectors: NFT, Infrastructure, DeFi, Payment/Data
First, after examining the impact of market sentiment on token prices, Tie find that every day the articles mentioning the tokens could have an absolute degree of influence on their prices.
So for DeFi and NFT, for example, do the comments from Twitter have an impact? Yes, as concluded by Tie, but the quality of the remarks is also crucial as not everyone is bullish on them, and there are those in disfavor. Therefore, the public opinion is not a good approach and it requires the help of natural language processing to determine specific sentiment.
This chart nevertheless and very clearly shows the impact of sentiment on price (though it is a reading).
However, does a single category of coin have much to do with the real sector? Not all tokens actually perform in line with the sector, but their performance within the sector certainly does.
So is it better to trade a single coin or the whole sector? They use a simple method where if the sentiment of a token rises to a certain level, the corresponding token is purchased and held for a week (Strategy 1). Which is better by comparing this method with merely holding a basket of tokens (Strategy 2)?
First, the return of Strategy 1 is lower than that of Strategy 2; second, the sharpe ratio of Strategy 1 is higher than that of Strategy 2.
The reason is that Strategy 1 can harvest the returns related to sentiment, but it also gives up the returns that are not related to sentiment. Strategy 2 holds the entire basket, and all positive and negative impacts will be reflected.
So it remains a better approach holding the whole basket as trading the specific type of coin tend to lose opportunities from other industries. Besides, the sentiment of the whole sector is more readily to be perceived, but the hype of a single coin is unlikely to be correlated to price performance.
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