Synergy Analysis on Cryptocurrency Returns and Investor Sentiment Using Bidirectional Encoder Representations from Transformers (BERT)

Cryptocurrencies have become prominent alternative investments. Unlike traditional financial assets, their intrinsic value is a subject of ongoing debate since they do not have a tangible backing asset. As a result, investor sentiment heavily influences price volatility and serves as a key indicator of perceived value based on collective investor beliefs. However, major events such as the FTX scandal can severely weaken investor confidence. Social media drives market discussions, making sentiment analysis vital for understanding behavior and predicting price movements. This study examined sentiment analysis techniques to construct an investor sentiment index and investigate its relationship with cryptocurrency returns during the FTX collapse. We employed DistilBERT and the AFINN lexicon method to develop sentiment index, finding that DistilBERT achieves an F1-score of 76.49%, significantly outperforming AFINN's 30.65%. Furthermore, our results indicate a positive correlation between investor sentiment and cryptocurrency returns during the FTX collapse. Our findings indicate that deep learning models can be more effective than lexicon-based approaches for sentiment analysis in financial markets