Analyst on Why Hasn’t Bitcoin Burst: Internet Searches and Futures Introduction

A recent set of remarks by a renowned policy advisor within the Dutch National Bank has some people wondering if the link between interest in Bitcoin and the price of the currency might actually reveal much more about the relationship between online interest and the price of the crypto than we initially thought. The expert outlined in his research that there was a nearly perfect correlation between the price of Bitcoin and the Google searches for the crypto—until the price dropped significantly at the beginning of 2018.

Joost van der Burgt is a respected policy advisor working for the Dutch National Bank. He remarked to CNBC in an interview that the price of Bitcoin went up last year nearly every time that the cryptocurrency was featured in major news outlets, regardless of whether the news was positive or negative. This correlation was so significant that he deemed it nearly a “perfect match.” But van der Burgt was quick to qualify that, at the end of 2017, the correlation broke and became much less statistically reliable.

This might be attributable, according to Burgt, to the introduction of new Bitcoin futures to the market. He believes that this new set of Bitcoin betting markets allowed the currency to avoid a complete burst of the price bubble, instead demanding a steady, but not total, deflation of price of the currency.

A Clear Hypothesis

The Dutch economist is not alone in this belief, either. According to researchers within the San Francisco Federal Reserve, the dive in Bitcoin’s overall price was largely correlated with the coincidental introduction of the Bitcoin futures markets in the United States. The agency released research in order to provide some institutional analysis of the crash in Bitcoin’s price, which was one of the most significant that the cryptocurrency has seen in recent market history.

Van der Burgt was also quick to examine how Google trends might affect other, more traditionally stable, assets. What he found was that, even for longstanding worthwhile assets such as gold or silver, the correlation between value and Google searches simply did not exist. This might be due to the relative newness of Bitcoin as an asset. Burgt outlined that making the public more aware of a possible investment, especially when the investment has just hit more major markets, is sure to influence price positively—even if the news related to the investment is perceived as negative.

A Dark Prediction

But the analysis by these economists does not bode well for the long-term future of cryptocurrencies like Bitcoin. This places Bitcoin in what some refer to as the happy “euphoria” part of an investment bubble. Though the currency never actually reached the final iteration of an investment bubble, known as panic, it did experience a significant scare as prices continued to fall at the beginning half of 2018. But for the cryptocurrency community, this is nothing new.

As Bitcoin investment markets continue to mature and face regulatory analysis, only time will tell whether Bitcoin is a bubble waiting to burst, or if it might become a permanent fixture of the financial marketplace.

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