Forecasting Bitcoin Price
Scientific research is mounting that certain indicators (variables) can be useful in determining (forecasting) the future price of Bitcoin and sometimes related volumes in trading activity.
This study from 2019 by Nasir, Huynh, Duong, and Nguyen analyzes the price relationship between Google Search Trends activity and the price of Bitcoin.
Google trends is an open source data resource that tracks the frequency of particular search terms. The authors of this study hypothesized that sentiment indicators, like Google Search Trends, could be relevant to the future direction of Bitcoin; and used a scientific approach and statistics to reach their conclusion.
Researcher Findings
Google search values exert significant influence on Bitcoin returns, especially over the short run
Relationship between Google search values and Bitcoin price/volumes does not persist over the long run (it is a short lived effect)
Bitcoin price responded positively to upward shocks of the Google search value
Increases in trading volumes were observed for at least a week following the shock event
The below is the Google search trend result for "cryptocurrency" over the last 5 years as of the time this article was published. Given that the original research was done in 2019, implications from this research will likely needs to be re-assessed given that these relationships can change over time (as the authors also point out). More recently in 2022, the two spikes in the search term value of Bitcoin coincided with severe price declines in May & June.
Nasir, M.A., Huynh, T.L.D., Nguyen, S.P. et al. Forecasting cryptocurrency returns and volume using search engines. Financ Innov 5, 2 (2019). https://doi.org/10.1186/s40854-018-0119-8
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