A recent study conducted by the esteemed Corvinus University of Budapest has shed light on the significant impact of investor emotions and attitudes on the value of cryptocurrencies, particularly those linked to the metaverse.
Dr. Samet Günay and his research team delved into the realm of cryptocurrency market behaviour, utilizing two key metrics to gauge the overall sentiment and mood of investors towards the market.
Firstly, the team analyzed Google searches for “cryptocurrency” to determine the level of attention investors were paying to the market. Higher search volumes indicated heightened interest or concern regarding cryptocurrencies.
Additionally, the researchers employed a Fear-Greed Index to measure the emotional state of investors, showcasing whether they were inclined towards risk-aversion or risk-seeking behaviour.
The study unraveled that investor sentiment significantly impacted the returns of metaverse tokens, particularly during bear markets – periods of substantial market downturns.
During bear markets, the research highlighted that negative emotions, such as fear, often drove investors to sell their tokens to mitigate potential losses. Conversely, positive emotions like greed could prompt investors to purchase tokens in hopes of reaping profits.
Contrastingly, during bull markets or stable periods, investor behaviour had a lesser impact on cryptocurrency performance, indicating that token performances were primarily driven by market factors during these times.
The research team at Corvinus University specifically focused on the performance of five metaverse-related cryptocurrencies – WAXP, ONT, MANA, THETA, and ENJ, using Bitcoin’s performance as a benchmark to gauge overall market trends and health. Over a span of four years (2018–2022), the researchers meticulously tracked the values of these tokens, scrutinizing how each token responded to market conditions and investor behaviours.
Dr. Günay emphasized that the influence of investor sentiment on token performance only became prominent later in the study. He noted, “Both the Bitcoin market and metaverse tokens in our study experienced downturns in 2021, around March and November. However, significant causal relationships did not emerge until 2022, indicating a delayed impact of investor sentiment on metaverse market returns.”
The researchers cautioned investors and policymakers to be cognizant of the lag time between shifts in investor sentiment and their impact on the market. They emphasized that making decisions based solely on sentiment data without considering this delay could lead to poor outcomes.
By gaining a deeper understanding of the influence of investor sentiments, particularly during market downturns, stakeholders can better anticipate risks and identify opportunities more effectively.
Image Credit: “Stock Market Crash” by danielfoster437 is licensed under CC BY-NC-SA 2.0.
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Tags: metaverse, research