How Does Social Media Impact Bitcoin Value? A Test of the Silent Majority Hypothesis

Abstract

Bitcoin’s emergence has the potential to pave the way for a technological revolution in financial markets. What determines its valuation is an important open question with far-reaching business and policy implications. Building on information systems and finance literature, we examine the dynamic interactions between social media and the monetary value of bitcoin using textual analysis and vector error correction models. We show that more bullish forum posts are associated with higher future bitcoin values. Interestingly, social media’s effects on bitcoin are driven primarily by the silent majority, the 95 percent of users who are less active and whose contributions amount to less than 40 percent of total messages. In addition, messages on an Internet forum, relative to tweets, have a stronger impact on future bitcoin value. Overall, our findings reveal that social media sentiment is an important predictor in determining bitcoin’s valuation, but not all social media messages are of equal impact. This study offers new insights into the digital currency market and the economic impact of social media.