New research by economist Joost van der Burgt, a policy advisor at the Dutch National Bank, reveals a near perfect correlation between Bitcoin’s price fluctuations and Google “Bitcoin” searches up until Bitcoin’s price crash in early 2018.
Source: Joost van der Burgt
Van der Burgt reports to CNBC that regardless of whether it was positive or negative news, whenever Bitcoin’s Google searches went up, so did its price.
“If the buzz is everywhere, it doesn’t matter exactly what the news is about… nobody wants to miss out and everybody’s trying to get a piece of it,” said van der Burgt.
Economist Hyman Minksy calls this phenomena the “euphoria” phase of a bubble in his financial instability hypothesis. Minsky’s five stages of a bubble—displacement, boom, euphoria, profit-taking and panic—became a well known theory during the global financial crises of the 2000’s.
Van der Burgt said that Bitcoin’s rise and fall don’t qualify as a bubble because it hasn’t reached a clear ‘panic’ phase.
“It wasn’t really panic, it was more of a scare,” van der Burgt said.
In an April report for the Federal Reserve Bank of San Francisco, van der Burgt suggested Bitcoin might be a legitimate innovation and that a link to the Hyman Minksy bubble theory would be a mischaracterization. He wrote, “Then again, maybe Bitcoin is different than anything we have seen before, and maybe a decade from now its market capitalization will be sky-high as it attains the status of a new global currency.”
The Bitcoin Google search trend remained a “perfect match” until the end of 2017. Van der Burgt suspects that this might be linked to the introduction of Bitcoin futures.
“My take on it is that because of the introduction of futures, that might have deflated the bubble before it got to a level where it might burst completely,” said van der Burgt. CNBC reports that the San Francisco Federal Reserve published research in May linking Bitcoin’s price crash with the launch of futures markets.
Interestingly, van der Burgt found no correlation between Google searches and other popular assets like gold.
Bitcoin is currently trading at $7,042, down from its nearly $20,000 high in December 2017.
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