Do trends predict prices?
Trends, hypes, mentions and how much a topic is discussed in the public discourse can indicate a potential investment opportunity. Can the same be said for the cryptocurrency markets?
Bitcoin’s major upward push to $20,000 can partially be explained by how much Bitcoin was discussed by the general public. Sam Smith of Chartstar analyzed trends/mentions of Reddit comment that mentions Bitcoin and the price of Bitcoin. With Google’s BigQuery he queried the database for all the comments that contain the word “bitcoin”, cleaned the data up and chunked it together to show monthly data points. The chart below was the result of his work.
The blue line shows the monthly comments that mention Bitcoin. The green line shows the price movement of Bitcoin. As seen in the chart, the price movement is lagging behind the number of mentions. Both reach their peak around the end of 2017 and the beginning of 2018. After reaching this peak. we see that the frequency of mentions drops significantly, the same is true for the Bitcoin price. During November of 2018, we even see the inverse happening. With the number of Bitcoin mentions going up and the price going down. And even more surprisingly, the number of mentions on Reddit after July 2019 dropped significantly while the price stayed steady and even went up. A reason for the disconnect could be that after Bitcoin went mainstream, Reddit became less significant for the price.
The same analysis was done with Google Trends. Interestingly, the analysis paints a slightly different picture. As seen in the chart above, the price of Bitcoin spiked and dropped way before the spike on the Bitcoin searches. Adding to that, during the second spike of Bitcoin during 2019 the number of searches did not even grow significantly.
Google VS Reddit
The contradicting results could be explained by the fact that Reddit is a place for internet users to get together and talk about the interests they share, like tech developments. The first time Bitcoin was mentioned on Reddit was on the 28th of January of 2009, not even a month after it was launched. Contrary to Reddit, Google is used by almost everyone on the planet. With a leading market share of over 90% of search engines. It also does not have a place where people can have a conversation.
Even though it sounds reasonable that the frequency of mentions should reflect the price of Bitcoin, this does not seem the case for both Reddit and Google anymore. Whether it is because there are more platforms to discuss Bitcoin or ‘hype-fatigue’ it is not sure. It is clear, however, that there is no obvious relationship currently with the number of comments talking about Bitcoin or the frequency of people searching for Bitcoin on Google. It might be sensible to use the trends or mentions alongside other sources of information to predict Bitcoin. But as a standalone strategy, it does not seem to hold up.