Google search, Twitter posts can predict Bitcoin and other crypto price: National Bureau of Economic Research
Cryptocurrency markets doesn’t behave like the traditional financial markets. In fact, the markets can change depending on the attention it gets on the internet. Researchers at National Bureau of Economic Research (NBER) found the same in their recent study. In fact, the attention can even predict the increase or decrease in price of cryptos like Bitcoin.Ethereum and XRP among others.
Contrary to the common opinion, “the markets do not view cryptocurrencies similarly to standard asset classes,” the study authors, Yale University economists Yukun Liu and Aleh Tsyvinski, suggested. According to the report published this week, the crypto market moves specifically based on ‘cryptocurrency specific factors’. These factors include attention of the investors and also market momentum.
Crypto market research
According to CoinDesk report, the researchers took CoinDesk’s Bitcoin (BTC), Ethereum (ETH) and XRP price trackers as the source of its market data. After collecting the data for over multi-year time frames, they used CAPM – a standard finance pricing model – to compare actual returns with projected returns.
They compare the cryptocurrency returns to traditional currencies like euro, metals like gold and macroeconomic factors like consumption growth. The results were statistically insignificant. So, it was evident that other factors are actually affecting the crypto market which researchers Liu and Tsyvinski try to find out. To find that out, researchers incorporates data from consumer activity on search engines like Google and various social media sites such as Twitter. They find a standard deviation increase in searches for keywords like “bitcoin” or other such coins show a little increase token price in the coming weeks.
They found that on an average, a single standard deviation increase in keyword search led to a 2.75 percent price increase. A similar standard deviation increase in Twitter post counts also resulted in a 2.50 percent increase in Bitcoin price.
Just as positive attention increases the price, the researchers find that negative investor attention also affects the crypto returns. They find a ratio between Google searches for phrases like “Bitcoin hack” and searches for words like “Bitcoin”. Study shows the results of the predictive regressions. The ratio “negatively and significantly predicts 1-5 week Bitcoin retruns”. The study shows, “For example, a one-standard-devation increase of the ratio leads to a 2.75 percent decrease of Bitcoin returns in next week.”
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