QUANTIFYING TRADING BEHAVIOR OF CRYPTOCURRENCIES USING ONLINE SEARCH INTEREST - HOW DO THEY REACT TO SPECULATION AND DO THEY ALL BEHAVE SIMILARLY?

Abstract

Cryptocurrencies are a new and exciting phenomenon in financial markets. Its rapid rise and fall in prices is unlike any other security and has increasingly caught the attention of the public. As the price of the tradable currencies - especially Bitcoin – skyrockets, so does the level of interest among the public as common folk vie for a chance at the spectacular gains. This paper attempts to quantify the trading behavior of cryptocurrencies by connecting its price with the level of public interest, measured by Google searches. We show that the relationship is asymmetrical; public interest reacts significantly to changes in price, but the increase in public interest does little to affect the actual price. The results also suggest high information asymmetry and high potential for bubbles in cryptocurrency markets. Finally, the paper also concludes that different cryptocurrencies behave the same despite the idiosyncrasies of each currency.