ASSESSING THE RELATIONSHIP BETWEEN INVESTOR SENTIMENTAND BITCOIN PERFORMANCE DURING THE PREAND POST-COVID-19 ERA

Abstract

The current paper investigates the interconnection between investor sentiment and Bitcoin returns with particular attention paid to conditional volatility in the period affected by the COVID-19 virus. Pandemic is certainly one of the largest-scale phenomena in global history, which has affected the financial markets and the crypto currency markets while making this research topical and necessary. To this end, more effective sentiment analysis methods are used to disentangle interactions between the sentiments of investors concerned, and Bitcoin market characteristics, thus highlighting the essential roles of FOMO, speculative activity, and the emotional factor in investing. By analyzing the sentiment score and returns of Bitcoin for the pandemic period and the overall period, this study observe that positive sentiment has a strong and significant positive relationship with returns and negative sentiment with volatility. However, as the study also reveals, COVID-19 has disrupted the Bitcoin trading with greater unpredictable fluctuation, high uncertainty, and higher trading frequency. That is why this kind of uncertainty which is existing in the market due to the COVID-19, and global lockdowns increase the attraction to safe-haven assets where Bitcoin can be considered as a worthy candidate. This study adds value to extant scholarly literature in the area of cryptocurrency markets and the operation of these markets by pointing out the importance of appropriate investment decisions, risk management in unpredictable situations and dynamics of the sentiment and conditional volatility of the Bitcoin’s returns in the light of critical global events, emotional trades and other epoch-making occurrences such as the COVID-19 pandemic.