Mining Google search data to find clues about the direction of the crypto market

Google searches for “Crypto” and “NFT” have dropped

Calling the bottom of the market is one of the most difficult tasks for investors. How do you know when the worst is over and maybe, just maybe, it’s time to come back and do some shopping?

This question matters right now as The Merge triggers a summer rally in Ethereum and dreams of a new bull run. As investors scramble for signs that this shift could be happening, many are turning to an unusual metric – Google Trends data.

Web searches

Analyzing Google searches has become one of the best ways to get a handle on investor sentiment and retailer interest. The Defiant discovered that in 2022, the web searches “cryptohave tumbled 73%, and those forNFTfell by 86%. Meanwhile, 57% fewer people search for “Ethereum”.

The results are not surprising, of course. With the $60 billion collapse of the Terra ecosystem in May and the subsequent fallout leaving Celsius and Three Arrows Capital bankrupt, investors are avoiding crypto.

What’s interesting is that the last time sentiment was this sour – December 2020 – the biggest bull run in crypto history was imminent. The market capitalization of the crypto market increased 17 times between March 2020 and January 2021, when the total value of the sector reached $2.2 trillion.

Source: Google Trends

So is Google search data a contrarian signal? When the feeling gets so bad, does that mean things are about to change?

If only it were that simple.

What we now know is that the economic forces that were meant to leave crypto alone are shaping the fortunes of the market as surely as stocks or bonds. In March 2020, Western governments flooded their economies with an unprecedented level of capital to deal with the Covid-19 pandemic and lockdowns. All that money lying around has paved the way for a bull market in stocks and digital assets, with investors betting big on risk.

Skyrocketing inflation

Likewise, this year’s economic developments – the hangover – weigh heavily on stocks and crypto as investors reduce risk. Soaring inflation in the United States and Europe was triggered by emergency pandemic financing, prompting central banks to raise interest rates. The increase in the cost of capital always slows economic growth and the attractiveness of equities, at least in the short term.

What is really significant is that the movements of the Fed, the Bank of England and the European Central Bank are also compressing the crypto, which was supposed to be immune to the machinations of the authorities.

Which brings us back to Google Trends data. The loss of interest in the crypto sector is symptomatic of a bear market.

Google Trends data and crypto prices over the past 12 months. Source: Google Trends and Defiant Terminal

Meanwhile, uncertainty surrounding the crypto’s next price move has fueled research into the “death” of crypto. The volume of the term “bitcoin/crypto is dead” peaked in May and June as many big crypto players imploded and the media published reports of the unsavory practices of many crypto platforms.

“Crypto is dead” goes viral on Google. Source: Google Trends

Of course, crypto is not dead. This is just an emotional response to a period of white fist movement in the market. And now a summer rally is underway, especially in decentralized finance. Ethereum has jumped around 38% in the past 30 days, according to The Defiant Terminal. Other DeFi mainstays – Polkadot, Polygon, Avalanche – also posted double-digit increases.

The merger, Ethereum’s next upgrade to a Proof-of-Stake blockchain system, drives the purchase of ETH and the recalibration of the DeFi narrative. And if there’s one thing investors love, it’s a good story.

The measurement of Google search data on “The Merge” can undoubtedly be a valuable indicator of sentiment in the weeks ahead.