Is the change in the number of "bitcoins" searched for a price lag indicator or a leading indicator?

Foreword: People are interested in the clues of price changes. So, what is the relationship between the change in Google search volume for Bitcoin and the price? The author of this article is David Z. Morris, who believes that interest in Bitcoin searches is a lagging indicator.

According to Google Trends, the daily search interest for Bitcoin has almost doubled between March 31 and April 3. Searching for other related terms, such as "cryptocurrency", "lite coin", "XRP", also rose sharply before the decline, however, Bitcoin has a crushed brand advantage, and its search volume is about other words. Eight times or so.

Based on weekly time calculations, Bitcoin searches doubled between the last week of March and the first week of April. Google offers a relative search volume rather than the actual search volume, but its search volume has reached its highest level since late November 2018.

The rise in search interest has been widely emphasized by viewers of encrypted media or social networks. Generally speaking, the rise in search interest implies a positive correlation with price rebound in the past week. Bitcoin prices have risen more than 20% this week.

But what is the nature of the relationship between search interest and cryptocurrency prices? Most importantly, can it help predict the price direction of Bitcoin?

In the traditional investment vocabulary, is this asking whether the search interest is a “lag” indicator or a “leading” indicator? Generally speaking, there is no unified view on these matters, but at least according to the traditional view, the stock market and the retail industry are leading indicators. If they fall, they can give an early warning of the economic recession; although unemployment and GDP are lagging indicators, only Changes will not change until the economy has changed.

So, is the search interest in cryptocurrency a lagging indicator or a leading indicator? In other words, people search for "bitcoin" because they have already thought about buying something, which leads to a continuous increase in prices. Or did they search for bitcoin because they heard that the price of bitcoin has risen?

Currently, we see the search lead price: although the search has fallen sharply in the past five days, the price of cryptocurrency continues to climb after the initial search soars. But historical data shows that in the long run, search changes often lag behind prices, including a particularly critical moment that we will delve into.

After thinking for a minute, you will understand why there is no clear direction relationship between search and cryptocurrency prices. People hear the cryptocurrency price rise, and then use Google search to learn more, which may turn into a buyer. That's why the bitcoin bull market cycle is so fierce. As shown at the end of 2017, search interest reflects both price and price increases.

There is even a second wave of amplification: financial news. Traffic is a priority for many economic, equity, and investment websites. In fact, this is a dirty secret: most traffic-dependent websites will at least pay some attention to Google search trends to guide them in reporting directions. The increased interest in Bitcoin search means that these news sites will write more about Bitcoin and promote them on social media, which in turn will lead to more people realizing that Bitcoin is rebounding. In this way, more people will generate interest in search, more people become buyers, pushing up prices, spawning more reports, and entering a certain cycle.

It is such a simple but fierce cycle. As mentioned above, if you actually have long-term investment propositions about cryptocurrencies or specific digital assets, then it can be a dangerous trap. Smart investors will not chase after the rebound.

However, those who buy in large quantities during the rebound are not well-informed, nor mature and disciplined investors. A very interesting explanation about the recent surge in search volume: the search for the phrase "BTC USD" has risen much less than the search for "bitcoin". The first search may show that the current holder is checking the value of their portfolio. The second is more likely to come from people who don't know the Merkel tree on the oak tree.

The irony is that in a fool market, it will spend money to play silly. Expanding curiosity makes the "big fool theory" more compelling, it will spawn FOMO (worry to miss), and sooner or later everyone will buy frantically, pushing the market to the top.

(An interesting comparison: When the stock market crashes, interest in stocks searches will rise significantly. According to one commentator: This suggests that " stocks are driven by fear and cryptocurrencies are driven by greed. ")

This is the real obstacle: at least based on the final rebound, Bitcoin search interest is useless to figure out when the frenzy will suddenly disappear. In December 2017, the search level of “Bitcoin” reached the highest level in history (so far). Therefore, the most important thing at the moment is that search interest is a very lagging indicator.

It is not clear whether it is going to a bull market for cryptocurrency or bitcoin. This rebound is still too early and there is no clear direction. For cryptocurrencies, including bitcoin, it is far from reaching the mainstream population, so speculation is still the main driver of price increases in the short term. The frantic logic of Internet hype may mean an explosive growth in prices in seemingly absurd time frames, which is very tempting for those trying to seize the uptrend channel. However, since many people have learned the hard way last time, the crash rate may be as fast as possible, and there is no easy way to know when the music will stop.

This article is translated from the "SL" of the "Blue Fox Notes" public number.

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