Google Search Trends Confirm The Bitcoin Run-up

I am a fan of using Google Trends for understanding the dynamics of financial markets. I have specifically used it in the past for analyzing extremes in sentiment and trading on gold. Given Bitcoin’s latest historical surge – this time through $11,000 – I wondered whether Google (GOOG) searches were increasing alongside the price of Bitcoin. Sure enough, Bitcoin searches have taken off this year, especially since April. I added search index data on cryptocurrency and blockchain for reference. The data are worldwide and include all search categories.

After a two-year lull, Google searches on Bitcoin have picked up steam. The surge to all-time highs roughly matches the current run-up in the value of Bitcoin to an all-time high.

Source: Google Trends

The dotted line indicates that the data for the week is incomplete. The last day in the record is Wednesday, November 29. Bitcoin traded through $11,000 on that day.

I did a quick and dirty check on correlations to check the historical relationship (recall that correlations range from -1 to 1 where -1 means the two data series move proportionally in exactly opposite directions and a 1 means the two data series move proportionally in exactly the same direction). Since searches and prices are generally trending higher, I would expect a high correlation (roughly above 0.5). However, I was still a bit surprised at these numbers:

Since December 9, 2012…
Weekly correlation: 0.91
Year-to-date…
Weekly correlation: 0.90
Daily correlation: 0.82
Daily percentage change correlation: -0.01
Daily percentage change correlation – search index lag Bitcoin by 1 day: 0.05

The last two correlations relate the daily percentage change in the price of Bitcoin to the daily percentage change in the Google search index for Bitcoin. The two are completely uncorrelated even after lagging the search index one day behind the change in the price of Bitcoin. Taken all together, these data confirm that the price of Bitcoin and searches on Bitcoin trend together: Google search trends confirm the current Bitcoin run-up. However, if any specific and reliably predictive relationship exists, a more complex model will have to find it. If these data represented gold prices and searches, I would assume that gold is currently hitting a (temporary) peak. The surging searches confirm an unsustainable frenzy and interest in the asset run-up.