Last year was a rough year for Bitcoin investors. The currency that for so long has been able to stand up to pressure from governments, the banking industry and doubting economists, now appears weak and vulnerable. It seems that markets were quick to flip from being overly optimistic to writing it off almost completely. Some of the pessimists suggest that the boom-and-bust cycle of the crypto-currency is nothing more than the classic Dutch Tulip mania.<\/p>\n
But bear in mind one of Warren Buffett\u2019s favorite sayings: be greedy when others are fearful. Has fear of Bitcoin investments driven it too low too fast, just as enthusiasm drove it to record highs?<\/p>\n
The clockwork behind Bitcoin<\/strong><\/p>\n It may be tempting to submit Bitcoin to the kind of supply-and-demand of fundamental analysis one would apply to any other currency or commodity, but the fact of the matter is that Bitcoin really isn\u2019t like any other currency.<\/p>\n Bitcoin, a virtual currency that is unattached to any political body, is not driven by the same circumstances that drive the US Dollar, for instance, which is controlled by political and macro-economic forces. Nor can it be compared to a commodity such as Gold, which is a finite resource with limited supply as well as limited demand. So what does drive the virtual currency\u2019s value?<\/p>\n Like many other new and innovative investment instruments, Bitcoin is driven by headlines. Investors are willing to pay a premium whenever headlines suggest that Bitcoin is the next big thing, just as when the headlines suggest that the crypto-currency is a passing fad, a bubble or simply unsafe (the case at the moment), the currency will plunge regardless of how many Bitcoins are in circulation or whether or not the Dollar is falling. Simply put, Bitcoin is measured by investor sentiment, which begs the question: how can that sentiment be assessed?<\/p>\n Google\u2019s insights on Bitcoin<\/strong><\/p>\n If Bitcoin sentiment is driven by headlines, wouldn\u2019t it be awesome if Google, the world\u2019s biggest and strongest search engine, could provide you with some sort of insights on Bitcoin\u2019s popularity? Well, we\u2019re in luck, because Google\u2019s \u201cTrends\u201d tool does just that. As you can see in the chart below, negative headlines, such as new regulatory restrictions in China or the bankruptcy of the Bitcoin exchange Mt.Gox, has brought searches on Bitcoin close to a record low.
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