Sentiment Analysis toward Cryptocurrency
Most observed countries have a positive sentiment toward cryptocurrency. The analysis was conducted by selecting some countries as samples; the US, India, Indonesia, and Malaysia. Sentiment analysis for cryptocurrencies is considered an excellent way to understand how to make smart investment decisions (1). By using the NRC sentiment method (Saif Mohammad, 2011), the writer studies the sentiment toward bitcoin as a keyword representing cryptocurrency in the social media medium of Twitter.
Cryptocurrency as a specific financial instrument has various views; there are both pros and cons. The pros are including: (1) Acceleration, cost reduction, and significant simplification of settlements between entities, since the scheme excludes “unnecessary” intermediaries; (2) Protection from inflationary processes; (3) The amount of issued bitcoins grows at a predetermined rate, unlike public money printed by the government at its own discretion (Swan 2017).
American sentiment toward cryptocurrency
The USA's sentiment toward cryptocurrency is positive as a developed country with more cryptocurrency applications in daily life. Businesses like Tesla, Microsoft, PayPal, Starbucks, Overstock, and AT&T have started accepting cryptocurrencies, underscoring their growing influence across diverse sectors (2).
Indonesia’s sentiment toward cryptocurrency
Indonesians have a positive sentiment toward Bitcoin, even though Bappepti just acknowledges it as a commodity, not a currency. Indonesia, as a most populous Muslim country in the world, and its view toward cryptocurrency, represented by its Muslim scholar institution, the MUI, have the view that “cryptocurrencies as digital goods or assets are illegal because they include elements of uncertainty and are harmful,” the MUI’s head of religious decrees, Asrorun Niam Sholeh, in 2021.
Islamic views toward cryptocurrency make it a controversial financial instrument (Shovkhalov and Idrisov, 2021), despite the tax benefits for the government. Additionally, “Given the great risks involved and the instability of dealing with these currencies, the Council recommends further research and examination of issues affecting governance.” (IIFA, 2019).
Cryptocurrency for Indonesian Government
The Ministry of Finance is making more profit compared to some crypto investors. It turns out that the amount of tax revenue from crypto assets collected by the Indonesian government has reached tens of billions. Despite the government’s policy to impose these taxes have only been in effect for about a month.
What is Indonesia’s crypto tax revenue? According to Bisnis, as of July 29, 2022, the government had received up to IDR 48 billion in tax revenue from crypto asset transactions, including income tax (PPh) and value-added tax (PPN). In the National Budget press conference, Finance Minister Sri Mulyani Indrawati made a direct announcement about the total amount of government revenue from crypto assets. She explained that since it took effect on May 1, 2022, the government has already collected taxes on crypto assets circulating in Indonesia. “We also collected crypto taxes, with PPh 22 gaining IDR 23.08 billion and domestic PPN totaling IDR 25.11 billion,” said Sri Mulyani on Wednesday (27/02).
Regulations related to crypto taxes The imposition of taxes on crypto is stated in Minister of Finance Regulation (PMK) No. 68/PMK.03/2022 regarding VAT and Income Tax on Crypto Asset Trading Transactions. The government considers that crypto assets have expanded widely and become commodities in trade, making them eligible for taxation. The policy regulates that the imposition of VAT applies to the delivery of crypto assets by sellers, the provision of electronic facilities for crypto asset trading transactions, as well as verification services for crypto asset transactions and/or services related to managing crypto asset miner groups (mining pools).
Malaysia’s sentiment toward cryptocurrency
Malaysia's sentiment toward cryptocurrency, is compared to Indonesia's dual banking system (conventional and sharia), and it is found that Malaysian have a positive sentiment as well.
Malaysia and Indonesia, as Muslim countries, have become the representatives of the Muslim world. Interestingly, this Muslim world is now divided into Pros and Cons about cryptocurrency.
PROs: Amalin (2018) opined that cryptocurrency fulfills the need for money exchange as it has transparent and clear regulation for trading. It does not contain usury (riba), which is banned in Islamic teaching. The Shariah Review Bereau (2018) identifies that cryptocurrency and tokens are permissible as money as they meet the habits of exchange transactions besides other requirements such as maal (property), manfa’ah (usufruct), haqq (right), and dayn (liability).
CONs: Development of the shadow economy, leading to tax evasion, which basically destroys the idea of an integral state, unsecured cryptocurrency, inability to trace participants in financial transactions (anonymity, laundering of criminal proceeds, financing of crime, fraudulent activities, etc.), High volatility of the exchange rate, lack of a mechanism for the redistribution of benefits to solve social challenges, loss of data in a cryptocurrency wallet making it impossible to withdraw financial assets from it in any other way; regulatory uncertainty, including illegality in some countries; and the ever-increasing complexity of the cryptocurrency production process (Shovkhalov and Idrisov, 2021).
As an additional reference for Southeast Asian Countries sentiment toward cryptocurrency, you can refer to this article.
Indian’s sentiment toward cryptocurrency
The interesting finding is that India has negative sentiment toward cryptocurrency. This is contradictory to the fact that a crucial indicator of the growing acceptance of cryptocurrencies is that nearly 1 in 10 Indian adults are now actively participating in the cryptocurrency economy (2). The next step of research might be required to find the missing link between two contradicting points.
Market Efficiency
The magnitude of the cryptocurrency fluctuations and volatility in the markets, relative to other financial markets, has catalyzed debates in the spaces of both economic theory and behavioral science around how information is processed in the market. Namely, the Efficient Market Hypothesis (EMH) has been evaluated in the cryptocurrency markets, and it’s applicability to price mechanisms in the relatively infant financial market.
The sentiment analysis is relevant to the new asset class since the market is still inefficient, while other research found that the cryptocurrency market is a weak form of EMH (inefficient). Urquhart (2016); Vidal-Tomas and Ibanez (2018); Jiang et al. (2018); Wei (2018); Hu et al. (2019); Caporale et al. (2018); Zargar and Kumar (2019); Al-Yahyaee et al. (2018); Nan and Kaizoji (2019). On the other hand, it’s also been concluded that cryptocurrency is almost efficient: Nadarajah and Chu (2017), Bariviera (2017), Khuntia and Pattanayak (2018), Kristoufek (2018), Tiwari et al. (2018), and Dimitrova et al. (2019).
The most recent finding that the cryptocurrency market follows adaptive market efficiency (AMH) due to time-varying efficiency in the cryptocurrency market is: Tran & Leirvik (2020); Noda (2021). By applying the principles of evolution to financial interactions, Andrew Lo proposed the AMH in 2004 as an effort to harmonize economic theories based on the EMH with behavioral economics.
Research Methodology
The method of the research uses the NRC sentiment (Saif Mohammad, 2011) with a period of observation between January 1, 2022, and December 12, 2022. By analyzing the feeds on social media sites like Twitter for the keyword “bitcoin”, the research analyzed only the English language. Hence, it would be a potential area of research in the future in terms of the longer observation period, more language being analyzed, and more keywords to be studied.
Twitter is chosen as the social media platform in this research based on the paper that suggests using Twitter as a social media platform because of the high frequency of cryptocurrency-related tweets. On the other hand, the frequency of news feeds is relatively low, but still, it impacts cryptocurrency prices (Inamdar et al., 2019).
References:
(1) https://link.springer.com/chapter/10.1007/978-3-031-24848-1_21
(2) https://economictimes.indiatimes.com/markets/cryptocurrency/the-future-of-payments-why-cryptocurrencies-are-here-to-stay/articleshow/102274620.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
