Finding 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 go back and buy?
This question is very important right now as The Merge spurs a summer rally in Ethereum and dreams of a new bull run. As investors scramble for signs of this shift, many are turning to an unusual metric: Google Trends data.
Searches on the web
Google search analytics has become one of the best ways to understand investor sentiment and public interest. The Defiant found that in 2022, web searches for "crypto" dropped by 73% and those for "NFT" by 86%. Meanwhile, 57% fewer people are looking for "Ethereum".
The results are obviously not surprising. With the $ 60 billion collapse of the Earth ecosystem in May and the subsequent aftermath of the failure of Celsius and Three Arrows Capital, investors are avoiding cryptocurrencies.
Interestingly, the last time sentiment was this negative - December 2020 - the biggest bull run in crypto history was just around the corner. The market capitalization of cryptocurrencies multiplied 17 times between March 2020 and January 2021, when the total value of the sector reached $ 2.200 trillion.
So is Google search data a contrarian signal? When the sentiment gets so negative does that mean things are about to change?
If only it were that simple
What we know now is that the economic forces that should have left cryptocurrencies alone are shaping the fortunes of the market with the same safety as stocks or bonds. In March 2020, Western governments flooded their economies with an unprecedented level of capital to cope with the Covid-19 pandemic and blockades. All this money in circulation set the stage for a bull market in equities and digital assets, as investors bet heavily on risk.
Likewise, this year's economic developments - the hangover - are taking a toll on stocks and cryptocurrencies as investors reduce risk. The surge in inflation in the US and Europe has been triggered by emergency financing from the pandemic and is driving central banks to raise interest rates. Rising cost of capital always slows economic growth and the attractiveness of securities, at least in the short term.
The truly significant aspect is that the moves of the Fed, the Bank of England and the European Central Bank are also squeezing cryptocurrency, which was thought to be immune to the machinations of the authorities.
Which brings us back to Google Trends data. The loss of interest in the cryptocurrency sector is symptomatic of a bear market.
Meanwhile, uncertainty about the next crypto price move has fueled research into crypto's "death". The search volume of the term “bitcoin / crypto is dead” peaked in May and June, when many big players in the crypto sector imploded and the media published reports on the malpractices of many crypto platforms.
Of course, cryptocurrencies aren't dead. It is just an emotional reaction to a period of market movements that have followed one another wildly. A summer rally is now underway, especially in decentralized finance. According to The Defiant Terminal, Ethereum has jumped 38% in the past 30 days. Other pillars of DeFi - Polkadot, Polygon, Avalanche - also recorded double-digit increases.
The Merge, Ethereum's upcoming upgrade to a Proof-of-Stake blockchain system, is prompting the purchase 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” can undoubtedly be a valuable indicator of sentiment in the weeks to come.