Effects of Social Media-Based Peer Opinions on the Prices of Cryptocurrency Options

Using a text-based measure of peer opinions constructed from cryptocurrency-related social media posts, we find that peer opinions contain valuable information about the prices of cryptocurrency options. Bitcoin options exhibit a volatility smile, which becomes steeper when peer opinions become bearish. The risk-neutral skewness of Bitcoin returns implied by options prices becomes more negative in times of bearish opinions. The predictability of peer opinions for Bitcoin option prices remains robust after controlling for momentum, volatility, demand pressures, news effects, and other sentiment measures, and exhibits no evidence of reversal over time. This effect is pronounced when Bitcoin attracts high investor attention, more diverse opinions about Bitcoin are expressed on social media, and Bitcoin options are more actively traded. We find similar results for Ethereum options.