Cryptocurrency is an increasingly popular form of digital money. It’s a fast-moving and volatile industry that keeps participants, observers, and regulators on their toes. From Bitcoin to the growing list of altcoins, it’s important for new and seasoned investors to stay up to date on all the latest cryptocurrency news.
Despite their relative infancy, digital currencies like Bitcoin have exploded from digital novelties to trillion-dollar technologies with the potential to change the world as we know it. But cryptocurrencies are not without controversy, including being used for illicit activities such as money laundering and drug purchases on the dark web. The nascent industry has also challenged traditional financial rules and attracted hackers, terrorists, and other criminals who use it to evade sanctions and fund their operations.
The rapid growth of cryptocurrencies has led to new laws and regulations as well as spawned a host of new companies that provide products and services to the industry. Staying up to date on all the latest cryptocurrency news is crucial for investors, especially as new technology and forks are introduced.
In this paper, we build a cryptocurrency-specific news sentiment indicator by processing cryptocurrency news headlines using a lexicon-based Natural Language Processing (NLP) approach. We then examine the impact of positive and negative news on returns, volatility, and liquidity in the cryptocurrency market. We find that positive news triggers the participation of uninformed traders who buy due to fear of missing out, while negative news leads to uncertainty among informed and uninformed traders resulting in reduced liquidity.