Emotional Contagion, Herding Behavior, and the Shoeshine Boy Effect: Sentiment Dynamics Bubble Formation in Cryptocurrency Markets

This study examines how emotional contagion and herding behavior contribute to speculative bubbles and crashes in cryptocurrency markets. Drawing on the Shoeshine Boy Effect, it investigates whether collective sentiment-especially extreme optimism and fear expressed by non-professional investors-can serve as an early warning signal for market overheating and abrupt reversals. Design/Methodology: The research employs large-scale sentiment analysis of social media (Twitter/X, Reddit, Telegram) and mainstream financial news from 2017 to 2022. It utilizes a five-category sentiment classification framework to capture both polarity and emotional intensity. Case Studies: Three representative cases-Bitcoin (2017), Dogecoin (2021), and Terra/LUNA (2022)-are analyzed using time-series alignment and comparative case-study methods. Key Findings: Extreme emotional sentiment systematically precedes major market peaks and crashes. Sentiment indicators, particularly those capturing retail-oriented narratives, lead price movements by several days. Negative sentiment is found to exert stronger and faster effects than positive sentiment, contributing to rapid market downturns once confidence breaks. Originality/Value: The study operationalizes the Shoeshine Boy Effect by translating narrative simplicity and emotional extremity into measurable sentiment indicators. It demonstrates that sentiment dynamics, rather than fundamentals, dominate price formation in highly speculative digital asset markets.

Pagina's: 74, Paperback, Eliva Press