Plumbing Google Search Data for Clues on Crypto Market’s Direction

Calling the bottom of the market is one of the toughest tasks for investors. How do you know when the worst is over and maybe, just maybe, it’s time to get back in and do some buying?

That question is a big one at the moment as The Merge spurs a summer rally in Ethereum and dreams of a new bull run. As investors scramble for signs this shift may be actually 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 retail interest. The Defiant has found that in 2022, web searches for “crypto” have tumbled 73%, and those for “NFTs” have fallen 86%. Meanwhile, 57% fewer people are searching for “Ethereum”.

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

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

Source: Google Trends

So is Google search data a contrarian signal? When sentiment gets this bad does that mean things are about to turn?

If only it was that simple.

What we now know is economic forces that were supposed to leave crypto alone are shaping the market’s fortunes as surely as equities or bonds. In March 2020, Western governments flooded their economies with an unprecedented level of capital to address the Covid-19 pandemic and lockdowns. All this money sloshing around set the stage for a bull market in stocks and digital assets as investors bet big on risk.

Soaring Inflation

Likewise, economic developments this year — the hangover — are taking their toll on stocks and crypto as investors curtail risk. Soaring inflation in the U.S. and Europe has been sparked by the emergency funding of the pandemic, and that’s spurring central banks to raise interest rates. Raising the cost of capital always dampens economic growth and the attractiveness of stocks, at least in the short term.

What’s truly significant is that the moves of the Fed and the Bank of England and the European Central Bank are also squeezing crypto, which was supposed to be immune to the machinations of 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 in the past 12 months. Source: Google Trends and Defiant Terminal

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

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

Of course, crypto is not dead. That’s just an emotional response to a period of white-knuckle moves in the market. And now, there’s a summer rally under way, especially in decentralized finance. Ethereum has jumped about 38% in the last 30 days, according to The Defiant Terminal. Other DeFi stalwarts — Polkadot, Polygon, Avalanche — have also posted double-digit increases.

The Merge, Ethereum’s coming upgrade to a Proof-of-Stake blockchain system, is driving the buying of ETH and recalibrating the DeFi narrative. And if there’s one thing investors love, it’s a good story.

Measuring Google Search data on “The Merge” may undoubtedly be a valuable indicator of sentiment in the weeks to come.