Google searches, tweets determine crypto returns, researchers find

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Unlike the traditional markets, the cryptocurrency market is characterised with wild price swings. Traders and investors are usually bewildered by the sharp increase and decrease in prices. Lots of theories have been postulated to predict price move but none have yet proven consistent. However, some people believe that the crypto market can change depending on the attention it gets on social media platforms. This idea has been supported by a recent study conducted by researchers at National Bureau of Economic Research (NBER).

The crypto market doesn’t behave like the traditional financial markets, and the study proves that attention from the internet and social media platforms can predict the increase and decrease in the price of cryptocurrencies. The paper revealed that investors express high interest in crypto through Google searches. Twitter, on the other hand, serves as an indicator of returns for well-known cryptocurrencies. For the source of their market data, Yale University economists Yukun Liu and Aleh Tsyvinski utilised CoinDesk’s BTC, ETH, and XRP price trackers.

The authors had collected the data over a multi-year time frame and utilised CAPM, a standard finance pricing model, to make comparisons between actual returns and estimated returns. They also compared cryptocurrency returns with that of the tradition market and found out that the results were insignificant statistically. This led them to believe that some other factor must be driving the crypto market. To find out what this factor was, researchers Liu and Tsyvinski incorporated the data they collected from consumer activity on the internet. The data was collected from search engines like Google and social media sites such as Twitter.

From their analyses, they discovered that Google searches could trigger positive returns and increase in prices within a period of 1-2 weeks for BTC, 1 week for XRP, and 1-, 3-, 6-week period for ETH. The researchers found that a deviation increase in keyword searches like “bitcoin” or other such coins caused a spike in the crypto price. A single increase in the standard deviation of keywords can result to a 2.75% increase.

For Twitter, researchers found post counts were important indicators for crypto prices. This is because a one-standard-deviation increase in Twitter post count can trigger a 2-week-ahead crypto return. This can result in a 2.50% increase in BTC price.

There is also a negative return that could call on the attention of investors as well as cause market momentum, according to the report. The researchers discovered that Google searches for “Bitcoin Hack” caused a standard deviations that resulted to a 2.75 percent decrease in BTC returns the following week.

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.