How does investor sentiment affect the Korean premium in the Bitcoin market?

Abstract

We examine how investor emotions and Bitcoin price influence each other using intraday data and textual analysis. We extract emotions from a popular online chatting window at one of the largest cryptocurrency exchanges in Korea. To control for global factors, we analyse relative Bitcoin prices and the differences between the Korean exchange and other global prices. The identified emotions predict the return and volatility of Bitcoin price one hour ahead. The results are economically significant: simple arbitrage trading strategies using the relationship between emotions and Bitcoin prices generate profits. Consequently, investor emotions drive Bitcoin prices, suggesting irrational crypto-markets that rational speculators may exploit.