A group of Swiss computer scientists conducted a study that took a look at web activity and social media chat around Bitcoin. They concluded when there is a surge in chatter around Bitcoin that the cryptocurrency is bound for a fall.
The BBC took a look at the study:
Key variable
Bitcoin was a great candidate for research because so much of the activity surrounding it takes place online, wrote the team in a paper published in the Journal of the Royal Society. Bitcoins are a virtual currency which depend on people using their computers to both generate the cyber coins and to verify transactions carried out with them.
Currently one bitcoin can be exchanged for $585 (£347).
Studying the “digital traces” of this activity could help lay bare the variables that govern the way the virtual currency behaves said the team.
The four key variables that emerged from the analysis were:
- the size of the user base
- the number of searches for information
- the amount of information shared
- price
From this the team at the Federal Institute of Technology in Zurich managed to find two positive feedback loops that steadily influence how much each bitcoin was worth.
Read the full article here
Actually, your headline gets the article backwards.
Both feedback loops they’ve identified show search volume and price rising or falling jointly. It’s not an inverse relationship.
You’re probably thinking of a third phenomenon they mention at the end: “[S]earch spikes were early indicators of an imminent drop in its value but added that this did not act as a good predictor …”
I was really just going off the BBC headline Joseph “Bitcoin price crashes linked to web search surges”
“In addition, they found found that search spikes were early indicators of an imminent drop in its value but added that this did not act as a good predictor of the biggest falls in the value of bitcoins.” I took the emphasis as biggest falls but still was an indicator on falls.
@Raymond,
Yes, I can see how that’s misleading. But their article itself is quite clear about having found 2 different positive feedback loops that cause the 2 variables to rise and fall together. And, although they note a 3rd apparent negative correlation between searches and prices (where up leads to down), they basically dismiss the finding as too insignificant to be relied on. Their major findings were the 2 positive feedback loops.
P.S. It’s definitely the BBC’s fault for choosing a headline that is contradicted by the article itself. After having conducting that interview, surely the reporter understood that their headline was the opposite of the truth; but perhaps their editor fell in love with the shock value. It worked. I read both your article and his because the headline sounded obviously false. More fool readers!
Not really, your fault, Raymond.
But for the record:
#1 “increase … prompts a rise”:
“The first ‘reinforcement cycle’ involves an increase in the amount of searching for information about bitcoins, which leads to more chatter about the currency and prompts a rise in its value.”
#2 “rise … tends to lead to a rise”:
“The second feedback loop involves a rise in search volume which makes more people download the software and join in the mining pools that generate coins. This too tends to lead to a rise in the nominal value of Bitcoins.”