Deep learning and NLP in cryptocurrency forecasting: Integrating financial, blockchain, and social media data

Abstract

We introduce novel approaches to cryptocurrency price forecasting, leveraging Machine Learning (ML) and Natural Language Processing (NLP) techniques, with a focus on Bitcoin and Ethereum. By analysing news and social media content, primarily from Twitter and Reddit, we assess the impact of public sentiment on cryptocurrency markets. A distinctive feature of our methodology is the application of the BART MNLI zero-shot classification model to detect bullish and bearish trends, significantly advancing beyond traditional sentiment analysis. Additionally, we systematically compare a range of pre-trained and fine-tuned deep learning NLP models against conventional dictionary-based sentiment analysis methods. Another key contribution of our work is the adoption of local extrema alongside daily price movements as predictive targets, reducing trading frequency and portfolio volatility. Our findings demonstrate that integrating textual data into cryptocurrency price forecasting not only improves forecasting accuracy but also consistently enhances the profitability and Sharpe ratio across various validation scenarios, particularly when applying deep learning NLP techniques. The entire codebase of our experiments is available via an online repository: https://anonymous.4open.science/r/crypto-forecasting-public . • NLP data from social media improve the accuracy of cryptocurrency forecasting models. • As a target variable, local extrema are a valid alternative to daily price changes. • Deep learning language models substantially outperform dictionary-based methodologies. • Both pre-trained and fine-tuned language models effectively quantify market sentiment.