Is There a Relationship Between Google Search and the Price of Bitcoin and What Might It Mean?
By: Curt Beck
Tags: Economy, Finance, Data Science, Bitcoin, Investing

Photo by Pierre Borthiry on Unsplash

Bitcoin came to dominate the financial headlines in late 2017, as it skyrocketed to nearly $20,000, and a serious sense of FOMO set in. The Coinbase app became the most downloaded app in the Apple App Store; people used money they might not have had — their credit cards — to get in on the action. Naturally, it all came crashing down by the end of 2018, with Bitcoin losing 80 percent of its value from its high in 2017. People were financially ruined and it seemed like the Bitcoin skeptics had the last laugh.

However, after three years, Bitcoin is having a Michael Jordan moment, finding itself back in the spotlight, blowing past $20k and registering a 269 percent year-to-date performance in the process. In some ways it seems like 2017 all over again, with Bitcoin poised to go on “another of those runs.” Although this article will NOT definitively state that Bitcoin will continue to surge, it may be likely. The main hypothesis is that as Bitcoin reaches new heights, it gains more publicity, which in turn may create more interest in the asset, possibly pushing the price higher, which then generates more publicity, therefore creating a loop, in which each variable continues to drive each other. This article will use Google Search data as a proxy for interest in Bitcoin and see whether it is positively correlated with the price of Bitcoin.

Google Search and Bitcoin: A Love Story

To kick things off, this article will consider five years worth data for Bitcoin and Google Searches for it and see whether the two move in the same direction. It turns out that the two generally move together, especially in 2017, where the two graphs look identical:

To be more precise about this relationship, the correlation coefficient, a variable used to measure the relationship between two variables, shows a score of .59, which indicates that Search and Price are positively correlated.

Correlation Does Not Mean Causation!

This positive relationship does not mean that one variable causes an increase in the other, although it might be reasonable to assume that an increase in Bitcoin’s price leads to more people searching for it. More people searching for and reading about Bitcoin might (I can’t emphasize might enough) lead them to subsequently buy it, driving its price up even more, creating a loop of more price increases, more publicity and more searches. Several signs point to this happening, with five crypto-related Apps currently ranked in the top 20 in the finance category of the Apple App Store.

Conclusion: This looks like a Bubble, right?

This sort of phenomenon, if true, paints a picture that certainly looks like a bubble. With the benefit of hindsight, we can definitively say that there was a Bitcoin bubble in 2017, and there might be one right now. However, that’s beyond the scope of this article. This article only conveys the fact that there is a positive relationship between Google Search and the price of Bitcoin. This relationship might create a feedback loop in which each variable continues to drive each other upwards.

References

I created a Jupyter Notebook where you can check out the data.