Bitcoin, social networks and semantic analysis

Damantic's focus on semantic analysis to predict the future trend of Bitcoin overcomes the traditional approach that produces quantitative shoddy results


We all were under the impression that Bitcoin were here to stay. The long-term impact is difficult to predict but Bitcoin are not just “another electronic currency” or “a new payment method”. Because of the way Bitcoin was engineered, it could be the most disruptive force of the past century in the field of economics (and therefore the financial markets). Bitcoin encloses several game changing features that could affect the financial markets in an unknown way. The elimination of all the inefficiencies that are an intrinsic part of our modern exchange systems and its operators, the total absence of a backup nation (and its own army), the total independence from transnational organizations or bodies make Bitcoin a disruptive driving force at technological and social level. Bitcoin rewards with its own currency its own workforce - the miners- who work to keep fluid the transactions process by making available their computing power, thus creating a direct stakeholders relationship with its collaborators. The Bitcoin transaction volume is expanding, but the legislative vacuum currently in place among the various countries compromises the capitalization of this cryptocurrency. This means, among the other things, that the exchange rate between Bitcoin and the “classic” currencies is unstable and its volatility is influenced by the volume of the Bitcoin exchanged in a single transaction.

After all these considerations, the application of standard exchange predictive methodology normally adopted by the traditional financial markets shows signs of inefficiency and produces questionable results.

The application of a quantitative approach, with its transaction volume, day high, day low and various econometrical data, is grossly failing here. Nowadays the Bitcoin user is an innovative 2.0 agent, incline to use alternative and efficient instruments (from a technological and financial viewpoint). It is an active participant of social networks too.

Although this is not the proper forum to remind how important and influent social networks are in the financial world, it is useful to keep in mind how them affect the markets.

Damantic’s research team applied a totally different and innovative approach to the problem: use semantic analysis applied to open sources (blogs, social networks) in order to predict the Bitcoin exchange rate trend versus the classic currencies. Thus, qualitative analysis instead of quantitative analysis has produced results, to say the least, of a stunning accuracy and reliability.

The semantic technology developed by Damantic, available in several languages allows us to outperform the boundaries of the current state-of-the-art: it is necessary the understanding of the context of a phrase and comprehend the true meaning of it, in order to analyze successfully the social networks. A further neural networks analysis will refine the results.It is possible, in this way, predict the future Bitcoin exchange rate trend, using as a font open source information and, based upon our empirical results obtained by our tests, obtain a several days visibility ahead of us.

Damantic semantic technology and text analytics bring excellent results also in the field of finance, with applications ranging from risk analysis for asset allocation to country specific risk evaluation, but we felt compelled to underline, due to the nature of the article, how an unconventional approach can help to solve an unconventional problem.

* Co-founder di Damantic