The Dynamics of Cryptocurrency Market Behavior: Sentiment Analysis using Markov Chains

Kim Kwansoo, Sang-Yong Tom Lee, Said Assar

Research output: Contribution to journalJournal articleResearchpeer-review


The authors examine cryptocurrency market behavior using a hidden Markov model (HMM). Under the assumption that the cryptocurrency market has unobserved heterogeneity, an HMM allows us to study (1) the extent to which cryptocurrency markets shift due to interactions with social sentiment during a bull or bear market and (2) the heterogeneous pattern of cryptocurrency market behavior under these two market conditions.

The authors advance the HMM model based on two six-month datasets (from November 2017 to April 2018 for a bull market and from December 2018 to May 2019 for a bear market) collected from Google, Twitter, the stock market and cryptocurrency trading platforms in South Korea. Social sentiment data were collected by crawling Bitcoin-related posts on Twitter.

The authors highlight the reaction of the cryptocurrency market to social sentiment under a bull and a bear market and in two hidden states (an upward and a downward trend). They find: (1) social sentiment is relatively relevant during a bull compared to a bear market. (2) The cryptocurrency market in a downward state, that is, with a local decreasing trend, tends to be more responsive to positive social sentiment. (3) The market in an upward state, that is, with a local increasing trend, tends to better interact with negative social sentiment.

The proposed HMM model contributes to a theoretically grounded understanding of how cryptocurrency markets respond to social sentiment in bull and bear markets through varied sequences adjusted for cryptocurrency market heterogeneity.
Original languageEnglish
JournalIndustrial Management & Data Systems
Issue number2
Pages (from-to)365-395
Number of pages31
Publication statusPublished - Feb 2022
Externally publishedYes


  • Cryptocurrency market behavior
  • Sentiment analysis
  • Hidden Markov model
  • Unobserved heterogeneity
  • Bull market
  • Bear market

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