Mapping Cryptocurrency Prices with Google Trends
The objective of the study is to understand the relationship between cryptocurrency prices and Google trend analytics. These results will probably seem obvious for most of you but I thought that seeing actual data confirming the logic could be of interest. I will also explain how Google trends can give some indication on whether the market is bottoming out and map indicative past price levels.
The frenzy around cryptocurrency happened at market peak.
Chart 1 could be mistaken for normalized crypto data prices but it actually represents Google trend values for each of the mentioned crypto over the last 5 years. Google trend analyzes the popularity of top search queries in Google Search.
Values are indexed from 0 of 100, 100 corresponds to the maximum search interest for the time. The hype coincided on most coins between the 12/10/2017 and 1/7/2018 as shown on Table 1 (Google analytics are given on a weekly basis).
If we have a look at what happened to the prices during this period, we can see that most cryptocurrency prices have reached their all time highs 1week+ after Google trend values reached 100.
If we take XRP (Ripple) as an example, the coin reached a 100 trend value on week 12/31/2017 (Table 1). The price at that time was $2.1 (Table 2), 1 week after XRP’s price was at $3.09 (+47%). Surprisingly, Bitcoin’s price seemed to have adapted immediately to the hype as it reached its peak price and peak trend value at the same time (on the 12/17/17 → see Table 1+2).
Google trends and crypto data prices are positively correlated.
Consequently, I mapped out the global crypto market cap (right axis chart 2) with its corresponding Google trend using the keyword “Cryptocurrency” (left axis chart 2). At a first glance, both curves seem to be closely related.
Except between May and November 2018 (red oval), where both curves tend to diverge. At that time Bitcoin prices where range trading between $6'000 and $9'000 with very low volume and interest on cryptocurrencies fell to 1/5 of May levels.
But recently with the market drop, the total market cap met up with Google trend levels after months of being overvalued.
If we check the data, chart 3 shows that the 6 month (27 weeks) rolling correlation between Google trends “Cryptocurrency” and the total market cap is positive between 0.5 and 1. These results suggest there exist large positive correlation between the two factors. The correlation stayed close to 1 between July 17 and January 18, coinciding with the crypto bull run and interest from mass population.
Today’s trend values are much higher that what they used to be for these prices.
After confirming some positive correlation between Google trend values and market prices, I wanted to check whether the current market prices and google trends are coherent with what happened in the past.
In the above chart, blue columns correspond to today’s google trend values and red ones correspond to values when we were at these price levels. For further explanation, let’s take Bitcoin as an example. The digital currency is currently at a trend value of 8 (blue) and valued at $3'200. Last time bitcoin was around that price was on the 7/8/17 and its trend value around 11 (red), higher than today.
Currently most cryptocurrencies have lower trend values which suggest that they are still overpriced (Chart 4, Table 3).
Consequently, what should be the prices at these current Google trend levels ?
If you go back in time and check the Bitcoin price when it was at 8 on the 7/23/17, you will find that it was around $2'800 (Table 3), that is 12% off the current price.
I flagged it as NEUTRAL, fairly valued, as its past trend value is not far from its current value (+/- 4).
While Bitcoin and the total market cap seem to be bottoming (current prices close to indicative prices), many cryptocurrency have still room to go lower (EOS -72%, TRX -83%,…), some seem to be undervalued (NEO +41%, IOTA +35%), and others are at their all time lows (BCH, XTZ).
I hope you enjoyed this week’s study. Next time I’ll be following up with more data and analysis on the CryptoCurious portfolios.
Thanks for reading,
PS: The study is not, and should not be regarded as “investment advice” or as a “recommendation” regarding a course of action.
