Investor sentiment and bitcoin prices

Using a rich data set of transaction-level buy and sell orders from the major digital currency exchange Coinbase, we formulate a measure for investor sentiment and shed new evidence on the sentiment-return relation for bitcoin. Using a bootstrapped quantile regression procedure we show a significant and robust relation between rising sentiment and price increases, and vice versa, across the distribution of bitcoin price changes. This relation is shown to be robust when controlling for a variety of exchange-specific and blockchain-wide variables. This relation is also robust when controlling for aggregate momentum across major cryptocurrencies. This finding is important as our data sample spans a period before and after the introduction of futures markets for bitcoin, which has arguably resulted in a regime shift in the time series behavior of its price. Taken together, our results show that bitcoin prices can undergo regime changes and that conventional regression-type models that focus on the center of the distribution of bitcoin price changes can yield misleading estimates.