My earlier google trend correlation still holding strong, crash predictable

[StewartJ]

This is very interesting.

I wonder, have you considered if the Google Trend line should in fact be 3-5 days behind the exchange traded price of bitcoins?

Once someone finds about bitcoins via Google, it does take quite a few days to get setup, funded and trading on those BTC exchanges.  So there would be a delayed effect, assuming there is a causal effect between Google Trend and the exchange price of bitcoins.

Just a thought.

SJ

Actually, I meant the reverse effect, regarding the delay... Google Trend line should be 3-5 days AHEAD of the exchange-traded price of bitcoins.

It would be ahead/behind if the google trend line only represented the first time a user looked up bitcoins. In reality, someone thinking about investing in bitcoins is probably making lots of bitcoin related searches throughout the whole process. And people who own bitcoins probably search most of all. In the end, the "first search" that helps a user find out about bitcoins for the first time is probably only a small portion of the entire search volume.

Good point.

I find this intriguing, this possible correlation between google searches and the price of bitcoins.

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[newMeat1]

Quick, everybody go do a bunch of Google searches!!!!

[bitfreak!]

I was actually looking at the Google trend data for Bitcoin earlier today, and imo this trend definitely exists, there is a clear correlation, and it makes perfect sense, the OP explained it well. Bitcoin is a virtual commodity, one would expect supply and demand to play a significant role in the value of BTC. Google trends gives a very powerful way of measuring the growing popularity of Bitcoin. Such a drastic and sudden dip in the trend data was obviously caused by something other than chance imo, and that something was probably the Mt. Gox crash. A lot of miners got out, a lot of investors got out, and a lot of interest was washed way in the overall process. We can all thank Mt. Gox for this imo. I will never use their exchange, so help me god.

[StewartJ]

Quick, everybody go do a bunch of Google searches!!!!

LOL !!! Let's make search bots !!

[StewartJ]

Such a drastic and sudden dip in the trend data was obviously caused by something other than chance imo, and that something was probably the Mt. Gox crash. A lot of miners got out, a lot of investors got out, and a lot of interest was washed way in the overall process. We can all thank Mt. Gox for this imo. I will never use their exchange, so help me god.

I cannot believe that the MT Gox incident will keep this bitcoin from thriving. If in fact we did scare the new crowd away, it's only temporary. I think we are at the final moments of getting our hands on cheap bitcoins, I have a strong hunch this is a great opportunity for us to be on the ground floor of it all.

[StewartJ]

This shows that Google Trends actually correlates pretty well with $/BTC.

Some details:
The graph you see on Google Trends is the 'relative scale' chart. But what I used for my analysis is from the 'fixed scale' trend to take out variations in Google Search traffic.

The correlation coefficient between the two series is .86, which is not bad, but by delaying the Google Trend by one week that goes up to .96 which means that in general the trend tends to lead price by about a week. The graph is a log scale to make it easier to read, and the trend was normalized (divide by 3.51) and delayed to show how well it fits. And the price levels shown are a weekly average, since this is the resolution of the Google data.

You might think that since the Google trend tends to lead price by about a week and it fits pretty well that you can use it to predict price. But, as you can see there is still quite a bit of variance. It can vary by as much as -100% to +137% with half the samples having a variance greater than 34%. (There is a zero term at the beginning of the series that does not show up on the graph because of the scaling) It is not exactly clear though that you can rely upon it as a predictive tool for projecting price, because that time shift in the later part of the sample does not actually produce a better correlation than the non-shifted series as a whole.

My conclusion is that it is certainly an interesting correlation, and it bears watching. But the high level of variance, and inconclusive causal link to price make it a weak predictive tool at best. If you want to try and use it to trade use the fixed scale data, not the relative scale, divide the last term by 3.51 to get an approximation of price, place your orders, and be prepared to wait a week to see if they hit...

But don't bet the farm.

Well done Chodpod, you are the bitcoin data wiz!

Wondering if this could me made into a live online chart somehow.... hmmmmm.

SJ

[bitfreak!]

This shows that Google Trends actually correlates pretty well with $/BTC.

You sir, are a genius. VERY informative post. Can I use that graph else where? It's great.

nt will keep this bitcoin from thriving. If in fact we did scare the new crowd away, it's only temporary.

Yes, I agree with you, Bitcoin will come back strong given time, and the advantage is lower prices again for a little while, which I can't argue with, but it is a shame to lose the big influx of interest Bitcoin had garnered recently.

[DamienBlack]

Thank you Chodpaba, an excellent analysis, as always. Very, very informative. I am actually surprised by the strength of the correlation, even though I pointed it out in the first place.

[StewartJ]

I am actually surprised by the strength of the correlation, even though I pointed it out in the first place.

That was an inspired discovery. Well done!

[StewartJ]

This would seem to be a decent indicator for longer term outlook in BTC investment, IMHO.

[DamienBlack]

For those interested, the most recent google trend numbers are:

July 1st - 36
July 2nd - 38
July 3rd - 38.

Using the chodpaba method, that gives a price of $10.82. But as chodpaba pointed out, there is variance +- 100%, so don't go too crazy.

[StewartJ]

I'm sure it could be done. I once kluged a custom interface between an AS/400 and a Mac Pro in the 90's, but I'm probably not the guy.

The tricky part would be to have the Google Trend data charted on a bitcoin price graph, 2 different data sources.

I was thinking of someone like Cowboy who did that awesome bitcoinity chart.  He uses his BTC donations for whiskey, btw.

SJ

[bitcoiners]

Here's another handy little Google tool for search history.

http://www.google.com/insights/search/#q=bitcoin&date=today%203-m&cmpt=q

Shows relative search terms as well.

The above map is for 90 days.  You can change it however you like.

Cheers.

[DamienBlack]

For those interested, the most recent google trend numbers are:

July 1st - 36
July 2nd - 38
July 3rd - 38.

Using the chodpaba method, that gives a price of $10.82. But as chodpaba pointed out, there is variance +- 100%, so don't go too crazy.

Wow, that was quick. I guess we've reached google stability.

[enmaku]

I retract my previous conclusion that the Google trend is weakly predictive. It actually correlates best by lagging price data by about three days.

You, sir, should be held up as an example in front of science classes. This is what it's all about folks: find a hypothesis that seems to match your data, test it vigorously until it seems proven to you, put it out there for the community to attack and defend it as best you can. The moment your hypothesis no longer matches your data, it must be abandoned or modified to fit the new data.

I applaud you for your openness and bravery sir. You are a fine example for scientifically-minded individuals the world over. Now please teach my friends, family and coworkers how to do this.

[DamienBlack]

@chodpaba

Wow, thanks for the higher resolution look. Very interesting. So it lags price by about three days, hmmm something to think about...

[StewartJ]

@chodpaba

Wow, thanks for the higher resolution look. Very interesting. So it lags price by about three days, hmmm something to think about...

Well, it does over that time period anyways. I would not completely discount the possibility that it could be predictive, and would certainly pay attention to it if it diverges significantly.

If it was AHEAD of price for 3 days it would make perfect sense, time for online discovery/investment of bitcoin. Do not understand the lagging...

[DamienBlack]

@chodpaba

Wow, thanks for the higher resolution look. Very interesting. So it lags price by about three days, hmmm something to think about...

Well, it does over that time period anyways. I would not completely discount the possibility that it could be predictive, and would certainly pay attention to it if it diverges significantly.

If it was AHEAD of price for 3 days it would make perfect sense, time for online discovery/investment of bitcoin. Do not understand the lagging...

Perhaps higher prices tend to generate news and excitement. Imagine if you will Mr Average, he has about $2,000 in bitcoins. When prices go up, he is dreaming of becoming a millionaire googling bitcoin and reading every article on it, recommending it to all his friends who also google bitcoin. He is at best buy buying mining equipment, telling the employee helping him that it is for bitcoin mining. When the prices start going down, he hangs in for a few days, but quickly caves and sells most of his bitcoins. He doesn't recommend it to friends any more, he isn't buying equipment. Now that he isn't as invested, he isn't making bitcoin related searches as often. But, when prices rise again, he start googling to see if this time it is going to be sustained... and so on and so forth.