1 Xiuping WU, 2, * Qingquan ZHANG, 3 Ben MCMILLAN, and 4 Vicki Wei TANG
1 University of Southampton, UK
2 Gies College of Business, University of Illinois Urbana Champaign, USA
3 IDX Digital Assets, USA
4 Georgetown University, USA
* E-mail: qingquan@illinois.edu
Received: 29 November 2023 /Accepted: 18 December 2023 /Published: 28 February 2024
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Abstract: Price prediction is crucial for evaluating financial derivative instruments in the cryptocurrency ecosystem. This study investigates whether investor sentiment drives price fluctuations of tokens and whether characteristics of protocols, such as holdings by large token owners, correlate with price movements. We present evidence that selected digital assets demonstrate correlation with the value of major cryptocurrencies like Bitcoin and Ethereum. Also, we tested the relationship between market sentiment and return/market capitalization for decentralized finance (DeFi) assets, finding that (1) investor sentiment significantly impacts predictions of DeFi price trends, (2) community size and holdings of top token owners affect long-term pricing, and (3) valuation depends not just on sentiment, community, and ownership but also on broader market conditions and attributes specific to the DeFi protocol. In addition to modeling the influence of sentiment, this research considers social factors around token communities along with whale holdings and other intrinsic protocol characteristics in an attempt to develop a robust price prediction framework for cryptocurrency tokens.
Keywords: DeFi protocols, Tokens pricing model, Investors’ sentiment, Cryptocurrency price, Regression analysis.
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