The impact of ChatGPT's launch on the returns of AI themed crypto assets.

The launch of ChatGPT in November 2022 has had a significant impact on the returns of AI themed crypto assets. Using an event study methodology and based on signaling theory, it was found that there are significantly positive abnormal returns on the day of the launch and also on days 8 and 9 after the launch, which is likely related to the fact that global attention to ChatGPT reached its tentative peak at that time.

The cumulative return of the AI crypto index is up to 41% over two weeks and 90% of the tokens exhibit positive abnormal returns. This suggests that ChatGPT's positive coverage has carried over to nearby AI-related markets and, in this case, AI-focused crypto assets. Accordingly, a "ChatGPT effect " is identified, i.e., a positive quality signal that the cryptocurrency market has picked up.

Fragmentation of cryptographic asset markets.

One implication of our study is the finding that crypto asset markets are highly fragmented. While there was virtually no relevant attention for AI tokens prior to the launch of ChatGPT, they may represent a (at least temporarily) independent submarket, which surprisingly is even quasi uncorrelated with Bitcoin in the timeframe considered in this study. This results in the practical implication that investors should closely follow developments related to specific thematic tokens, as their dynamics may be different from the rest of the cryptocurrency market.

Influence of social networks and media on financial markets.

The findings suggest that, consistent with the notion of transfer, cryptocurrency investors rely on their social networks and the media to (re)evaluate new information related to AI and AI tokens, leading to abnormal price effects. As predicted by cognitive equilibrium theory, investors try to strike a balance between public sentiment and their personal beliefs, in this case, regarding ChatGPT, AI and AI tokens. A favorable view of ChatGPT and the potential of AI translates into a corresponding perception of AI tokens, resulting in the transfer of attitudes from the investor's network to the asset they invest in. This demonstrates the influence that social networks and media exert on financial markets.

According to signaling theory, positive sentiment towards ChatGPT and AI serve as quality signals to the market, which are immediately reflected in prices. This finding aligns with Ante's related signaling theory findings on how social media influencers and their activity represent quality signals relevant to the cryptocurrency market, as well as the study by Feinstein and Werbach, who identified that regulatory events can function as quality signals affecting cryptocurrency markets and trading. The market will only react as long as the signal (i.e., sentiment) has value.

The Sense of Confidence in ChatGPT

If, hypothetically, the market loses confidence in ChatGPT and sentiment changes to negative, this change should also be reflected in prices. If the quality of the signals becomes too low, for example, due to a limited number of people posting on ChatGPT, investors may stop interpreting it as a quality signal and drop it. From this perspective, the "ChatGPT Effect" is simply a non-critical aspect of market efficiency.

It is crucial for investors to understand the underlying factors and carefully evaluate market signals and trends before making investment decisions. The influence of social networks and media on financial markets is evident in the case of the "ChatGPT effect". However, it is important to keep in mind that crypto markets are highly volatile and subject to rapid change. Trends and signals can change rapidly, and investors must be prepared to adjust their strategies accordingly.

Ultimately, the "ChatGPT effect" highlights the growing intersection between artificial intelligence technology and cryptocurrencies. The development and launch of innovations such as ChatGPT can have a significant impact on thematic crypto markets and provide new investment opportunities. As technology and the market continue to evolve, it is essential that investors keep a close eye on the latest news and developments to make informed decisions.

The impact of the ChatGPT launch on the returns of AI themed crypto assets and an equally weighted AI crypto index based on those tokens. The results show significant positive abnormal positive returns in the days of the launch and in the days after, suggesting a "ChatGPT effect" and a positive quality signal captured by the cryptocurrency market. In addition, it highlights the fragmented nature of crypto asset markets and the importance of closely following developments related to specific thematic tokens. As always, it is important to keep in mind that the cryptocurrency market is highly volatile and subject to a variety of factors that can influence prices and returns.