We’ve hypothesized about bitcoin’s volatility for a while now as we saw Mt. Gox account verification queues climbing to more than 20K, luxury automobiles purchased with bitcoin, and a series of other link bait articles. It was time to empirically test what was really driving bitcoin’s erratic prices.
Hype-Driven Speculators
While we won’t jump to assume causality, we will point out the 0.85 correlation coefficient between bitcoin price volatility and expressions of global interest in bitcoin.
We constructed this chart by mapping the frequency of global searches for ‘bitcoin’ on google vs. the volatility of bitcoin prices. Since google trend data is represented out of a maximum popularity of 100, we mapped average volatility same way – relative to the day with the maximum volatility. In these graphs, volatility is measured by finding the difference between the maximum and minimum price per hour and then the average of those hourly differences over the course of each day.
It appears the articles lambasting bitcoin for it’s volatility may have actually been contributing to a vicious cycle of… more volatility. As news coverage drove unfamiliar speculators into the market, the price continued to rise and interest continued to grow. That is, of course, until fear of loss from a product most still don’t understand drove people out of the currency en masse when prices began to slide, exacerbating the pullbacks. As press coverage waned and the short term speculators left, volatility began to subside.
Do Not Confuse Volatility With Price
We charted price onto the same graph. As you can see below, once hype-driven interest in bitcoin subsided and volatility decreased, confidence returned and the price began to steadily increase before stabilizing around 60% of it’s peak value. Arguably the best thing that’s happened to bitcoin in the past month is that people stopped talking about bitcoin.
The post The Chart That Should Surprise No One: Bitcoin Volatility vs. Search Popularity appeared first on The Genesis Block.