The appearance of bitcoin in the results of popular search engines can affect its price. This was the conclusion made in the report of the National Bureau of Economic Research USA. In their opinion, cryptocurrencies price rates are strongly influenced by the attention paid to them on the Internet.
The authors of the study, Professor of Economics at Yale University Aleh Tsyvinski and graduate student of the Faculty of Economic Sciences Yukun Liu, found out that after search queries for the word "bitcoin"(Bitcoin) in Google grow in number, the coin price rises an average 2.75% a few weeks later. The increase of bitcoin mentions on Twitter leads to a 2.5% increase in the price of the token. The reports on hacker attacks, however, make cryptocurrency price go down.
Academics conclude that cryptocurrencies react to the situation on the market in a different way than traditional financial assets do. One should not apply the usual methods of calculation to them. According to researchers, there are certain factors that are unique to cryptocurrency market.
The first factor is the "momentum effect", which assumes that if the coin rate is growing, it is worth waiting for an increase further. Under this strategy, to make money on bitcoin, the investor should buy it when the price of the coin grows more than 20% compared to the previous week.
The second factor is investors' attention. The price of a coin, according to researchers, depends heavily on the number of its mentions on the Web. If attention to a digital asset increases, its price goes up. In the case of Bitcoin, it occurs within 1-2 weeks after the number of news pieces dedicated to it grows. For Ripple (XRP/USD) the growth starts after one week, while Ethereum (ETH/USD) takes 1 to 6 weeks.
WHY IS IT IMPORTANT?
1. Scientists came to this result based on accurate statistics for several years: they follow the cost of bitcoin from 2011. The prices of XRP and Ethereum have been analyzed from the moment of their creation in 2012 and 2015, respectively. To determine factors that affect the value of digital assets, a standard finance pricing model known as the CAPM was applied.
2. Academics note that cryptocurrencies can completely change their behavior depending on what is happening on the market, but so far their forecasts and the factors they listed seem to work.
3. The surge of news about bitcoin growing, and then plummeting in price in late 2017 and early 2018, generated huge interest and attracted an influx of non-professional investors into the industry. Their actions eventually brought down the rate of the first cryptocurrency several times.
Also, the study concludes that bitcoin should occupy 6% of any investors portfolio.
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