Correlations are easy to visualize at times. One can see that recently, with few exceptions, many cryptocurrencies marched in tandem. In the early days, this was not the case. Most cryptocurrencies moved in ‘random’ mode.
Perhaps it is because of the scope of investments flooding into the cryptocurrency markets today. The institutional investors are beginning to push real value into the system, with the real risk of serious downtrends, should the brokers receive the “sell all” order from their clients.
In any event, the recent run up and “half-bubble” burst of bitcoin has made for interesting discussion. One I have not seen yet, is a discussion of bitcoin breaking the gold trend line and what happened when it did.
When I state the “gold trend line,” I’m using Google Trends to plot “interest” or “searches” of a word or a sets of words. There are many available combinations and the sales of mined data is big business. To the uninitiated, trying to find the correct setting – to use the trends to your advantage – can be a bit disconcerting. So, keeping it simple might be your solution.
Or you can read the tea leaves. Pig entrails? Clif High, Webbot supporter? Palm Reader enthusiast?
I use the gold (as a chemical element) trend for comparisons. Not “gold as an investment,” but that is another option. I also set the trend for a worldwide search. Now, you can use long-term or short-term settings, say 90 days or even a year.
Recently, after plotting various trends, I wanted to see if there were any patterns or correlations between “gold” and “bitcoin” (search topic). From November 1, 2017 through December 31, 2017 I found a curious thing. (See chart below.) Bitcoin has broken the gold barrier.
Can we then estimate future bitcoin prices, based upon its “interest” and its relation to gold trends? How about bitcoin interest v. Monero interest?
Well, based on the data set below, not exactly.
(Source: Google Trends – 60-day Time Set. Please see Google for an explanation of their data sets.)
Now, in many countries, this was the end of tax season, but in the United States, the tax laws recently changed – were clarified. It was, of course, decision time.
Do I hold, now that I am penalized for trading crypto for crypto? Do I sell, and take my tax lumps, before the end of the year? Do I trade into gold or a private untraceable cryptocurrency? If I do elect to hold private cryptocurrency (Monero), should I expect a price spike, because everyone else is probably thinking along the same lines, or will regulations kill off the last hold-outs and make the above-board cryptocurrency substitutes (Ripple, Stellar etc.) surge? (Not really.)
And there are other factors. Inflation. Whole countries outlawing cryptocurrencies. Cryptocurrency exchanges being ripped-off. Exchanges disappearing or going offline, without warning (Binance). So, by no means is the above trend interpretation authoritative.
Let’s just focus on the gold trends and bitcoin’s relation to it, during the time-frame in question. That’s November and December of 2017.
As you can see above, the gold trend line was broken by bitcoin on at least three separate occasions, when comparing the chosen data. November 27, 2017, December 2 – 3, 2017 and again on December 29, 2017. The question is, did the above trend “predict” the coming surge in bitcoin prices or at least hint at the possibility? Or was bitcoin issuing a warning?
One can see that the Monero interest trends barely budged. It didn’t seem as if people were thinking about privatizing.
November 27, 2017. What was happening? According to Coinmarketcap.co here, bitcoin closed at $9,818.35 that day. It had been surging before that, having closed at $6,559.49, on November 13, 2017. It had already risen over a third in value in short order.
What about December 2 – 3, 2017? $11,074.60 and $11,323.20 closing prices, respectively. Even in a trough of “interest” bitcoin was surging in price. People were not searching for bitcoin as much. Why? Were they holding? Watching on Coinmarketcap.com?
On December 29, 2017 bitcoin closed at $14,656.20. Was the breaking of the gold trend line, in reverse, a signal of a future downtrend? Not immediately, if at all. Bitcoin surged to over $17,000 by January 6, 2018. After that, however, it began to retreat. As of February 12, the closing price of bitcoin was $8,926.57.
Let’s add some more info, focusing on the breaking of the gold trend line, in gray.
The above chart illustrates bitcoin’s closing prices on the given date ranges. You can immediately see that the first peak of search interest over the gold trend line correlated to a very small value increase. We must remember, however, people searching for bitcoin will then need to figure out how to buy it, if they were new to the game. In any event, there appears to be a lag between “interest” (positive or negative – we do not know) and price changes.
As bitcoin broke the gold trend line on November 27, 2017, prices surged a little, initially. Then, within less than a month, the price of bitcoin more than doubled. By December 16, 2017, bitcoin closed at $19,497. A surge of over 100% in price. Why couldn’t it go higher?
Would a reasonable person have understood that such a surge in interest via trends (searches) would translate into higher bitcoin prices, when the gold trend line was broken? Again, how can we know? One can search for bitcoin for many reasons. For reasons “not to buy” and for reasons of education, as well. Let’s face it, though, something urged many people (or bots?) to type in the word: bitcoin. Were people fearing that they might miss out. “FOMO” in colloquial internet-speak? Were we being manipulated into thinking that bitcoin interest was surging?
In the old days, just after bitcoin hit the cryptosphere, a 100% increase in price would have been considered, by percentage, no big deal. Today, however, such an enormous surge is in the billions of dollars – not mere millions. It is serious. Don’t let the oldies fool you.
Bitcoin appeared to be on track to hit all-time highs daily, after the gold trend line was broken. Bitcoin was running hard, until about December 18, 2017 – when the cryptosphere began to suffer one of its worst collapses on record – when you factor in the amount of money invested — and now divested.
So, what happened?
From over 300 billion dollars in capitalization, bitcoin halved in a matter of weeks. Did bitcoin touch the “golden trend line” and was it punished for doing so? Since gold trends correlate with US Dollar “interest” trends, was bitcoin’s popularity a threat to the financial order?
Was this one of the greatest pump and dump schemes in history? The “Tether” play, as some have indicated. Pumping up the price of bitcoin by simply “printing” phantom, worthless Tethers — and buying? Then cashing out to fiat? (Not unlike any government that deals in fiat currency.)
We no longer use gold as money, therefore there is very little utilitarian value to gold at all, except as a safe-haven asset, provided it is not confiscated. Did bitcoin touch the US Dollar “third rail?”
But let’s set these aside for a minute. What else was going on the day bitcoin began to eat crow?
News, Before the Fall
Was there anything that was happening on December 18, 2017 or shortly before, that may have changed people’s minds? Some introduction of “panic” or market manipulation?
December 13, 2017:
- The Wall Street Journal ran a story. “Is Bitcoin a Bubble? 96% of Economists Say ‘Yes’.”
December 18, 2017:
- WSJ: “Bitcoin Futures Prices Fall in CME Debut”
- Time.com, under its Money section, ran this story: “3 Big Reasons the Bitcoin Bubble Could Pop Soon.” It cited the WSJ story, above
- CNBC, “Bill Miller’s hedge fund has half its money in bitcoin” And he might sell?
- Bitcoin turns four years old
- Emil Oldenburg, the CTO and co-founder of bitcoin.com (in support of Bitcoin Cash) said sell all your bitcoins
- Washington Post: “Bitcoin is big. But fedcoin is bigger”
- Science Alert: “5 Myths About Bitcoin You Need to Understand”
- CNBC: “Watch out for a correction in bitcoin after a parabolic rise”
- India Briefing: “India Cracks Down on Bitcoin, Initial Coin Offerings”
- Reuters: “Danish central bank head issues stark warning on “deadly” bitcoin”
- CoinTelegraph: “Rapid Increase in Tether Supply Raises Concerns of Manipulation, Creative Accounting“
The gist of it?
Wall Street was reporting that economists didn’t like bitcoin, big investors were selling bitcoin, fedcoin was looming, bitcoin myths were being exposed, bitcoin corrections were coming, Tether was probably scamming billions, and socialist countries were bitching because they couldn’t get in on the action.
A perfect pre-panic or a conspiracy theory?
One last chart for your perusal. As bitcoin’s interest was driving hard these past several months, it approached the US dollar interest line, at speed. Like the gold interest line above, bitcoin pierced this dollar trend line. There has been conjecture about this as well.
Did bitcoin’s sudden rise act as a market-dollar barometer in advance? Knowing that the dollar was and is devaluing, that gold prices have been (and may still be) manipulated, and that the markets are overheated, to say it mildly — did bitcoin signal the alarm? Maybe. At least that’s one take. But why divest of crypto, if you think gold and the DOW Jones Average are headed for the drink? Cash under the mattress? More than likely.
(Source: Google Trends.)
Finally, if Tether is printing phantom dollars and they do it responsibly, is it any different than any fiat currency in existence — aside from the fact that it is privately managed? Can it replace the dollar and at the same time, support cryptocurrency? Can it replace POS cryptocurrencies, that are also created out of thin air? How about POW crypto’s that are created by gamed-computer-mining?
In any event, I’m at loss to explain how Tether made bitcoin surge 100%, to 300 billion dollars in value, in a month, when Tether’s market capitalization has never exceeded three-billion dollars. Churning? The fact that investors could (can) “fall back” to Tether, if BTC faltered? Hello? There aren’t enough Tethers in existence.
I suppose one could take out an option, but the Tether spreads must be useless, unless you have millions to play with. Help me here, financial gurus. If everyone agrees that each Tether is worth one US dollar and there are no dollars actually backing up them up, at what point do investors lose confidence?
No wonder the US Government wants to eat Tether’s lunch. It’s a competitor.
Who is Crypto’s real enemy? Ask yourself that question.
The above is my opinion and conjecture. Don’t bet your house on it.