Herding behavior in crypto - Correlation between google searches and bitcoin price

Herd behavior is the tendency for individuals to mimic the actions (rational or irrational) of a larger group. People are often not aware of how much this behavior influences them. There are a couple of reasons for this.

One of those is social pressure. Most people are very sociable and desire to be accepted by the bigger group instead of being outcast. Following the group is an excellent way to be accepted and thus enjoying the protection of the group:

A second reason is the it is unlikely that such a large group could be reasoning incorrectly. Even if you, as an individual, think the group is wrong people often find themselves following the group because if the big group reasons that way there surely must be a reason, probably because of something you don't know. This is especially the case when thinking about areas you don't know a lot about.

I'm not going into details whether this behavior plays in our advantage for crypto investing. The below examples should be quite self explaining.

This is the Bitcoin - USD price chart of the last three months. I've marked a couple of extremes, peaks and bottoms.

Now let's take a look at some google search trends. trends.google.com allows to have a look at how popular a search term is over time. I started with 'buy bitcoin' as search term.

What's interesting is that we can see that most people are interested in buying bitcoin exactly at the peak. A smaller interest can be found at the bottoms.

Let's take another search: 'bitcoin value'.

Again some clear trends. Exactly at the peaks and bottoms we see the searches peak. I can only guess that this is the dumb money. Why would one use google to find the price of bitcoin?

Another clear correlation: 'will bitcoin rise'. Again there is a clear correlation. Every time the price crashes people go search for future predictions.

These correlations show the herding behavior for buying and the doubts when the group seems to be wrong. Based on these correlations this seems to be a good point to buy bitcoin and keep them until the big herd starts buying them again. Of course this is only based on this data and there's more involved.

Extra resource: Human Herding: How People are Like Guppies

Image: nauticalshare.com