What Is the Satoshi Cycle?
The Satoshi Cycle is a theory that says there is a high correlation between the price of Bitcoin and Internet search volume for the word 'Bitcoin' and related terms. The theory was proposed by Bitcoin expert Christopher Burniske in August 2017 when Bitcoin hit a record high at the time. The name of the idea derives from the as-of-yet unidentified creator of Bitcoin, Satoshi Nakamoto.
- The Satoshi Cycle is a term coined by Christopher Burniske in August 2017 to describe the apparent correlation between search volume as given by Google and other search engines and the price of Bitcoin.
- Burniske understood the cycle to be a positive phenomenon and not an indication of a developing asset bubble. He thought increased interest in Bitcoin would lead to popular adoption for everyday financial transactions, which has not been the case.
- The inflating and popping of the Bitcoin bubble has made the idea of virtual currency and the promise of trustless transactions over a technology called the blockchain a fixed feature in finance and technology circles.
How the Satoshi Cycle Works
Bitcoin is a cryptocurrency that was created by Satoshi Nakamoto and was launched in January of 2009. At the end of 2010, one bitcoin was worth $0.29. As of March 2021, one bitcoin is worth around $50,000.
Bitcoin First Makes the News
Initially, Bitcoin was a niche movement among computer enthusiasts, cypherpunks, and people interested in being able to hide their economic activity from the government. Message boards like bitcointalk.org had lively discussions about the possibilities of Bitcoin, but few people outside these groups knew Bitcoin existed.
In 2011, Ross Ulbricht created Silk Road, the first darknet market. Silk Road sold mostly drugs, though many other kinds of illegal goods and services were sold through the platform. It was notable, however, because it relied on the perceived anonymity of Bitcoin to transact digital payments. When the FBI shut down Silk Road in 2013 and arrested Ulbricht, they confiscated over 170,000 bitcoins worth tens of millions of dollars.
During this period of growing notoriety, the price of Bitcoin surged from $200 to over $1,000.
The 2nd Period of Notoriety: 2015 to 2017
Bitcoin fell from its highs in 2013 over the course of two years and the price hovered around $300 as its reputation continued growing. In 2016, the price began a long, slow appreciation that reached its former peak of $1,000 in early 2017.
At the same time, the general public started to take notice of the price to appreciate, and searches for "Bitcoin" on Google and other search engines also began to grow as the cryptocurrency entered mainstream discourse.
By August of 2017, the rise in Bitcoin prices was being called a bubble by many observers who were not advocates of the virtual currency. The classic signs of a bubble—dumb money rushing in because they believe an asset's value can't fall—were reflected in the explosion of writing about Bitcoin and the concomitant searching for answers reflected in Google search results. This was what prompted Burniske to make his observation about the Satoshi Cycle.
New Highs 2020 to 2021
Bitcoin again reached new all-time highs toward the end of 2020 and into early 2021, reaching as high as $58,500. This rise was coupled with new interest in Bitcoin from institutions, including large tech corporations like Tesla, Microstrategy, and Apple, which all announced billion-dollar purchases of the cryptocurrency. With this spike in price, internet search, too, has increased dramatically.
The Satoshi Cycle: A Bankrupt Concept?
The Satoshi Cycle states that this rising interest in Bitcoin leads to parties running searches for Bitcoin on Google and other search engines. The increasing search hits, in turn, increase the value of Bitcoin. The more Bitcoin rises in value, the more interest in it—the more interest, the higher the price of BTC. And so, the cycle continues.
Burniske, a Bitcoin enthusiast, interpreted this as a positive development and not a sign of an inflating asset bubble. He believed that rising interest in Bitcoin would lead to increased participation in the use of the currency and that demand would translate into higher demand for the coin.
However, history proved him wrong almost immediately after he made his call. On December 17, 2017, Bitcoin hit $19,783, its price peak, and fell over the next year to a low of around $3,500 during the end of 2018 and the early months of 2019.
Bitcoin has had a substantial impact on financial technology, however, and it has popularized the idea of a blockchain for "trustless" transactions in other industrial uses. After rising in price at the beginning of 2020, it fell again along with other asset classes during the onset of the COVID-19 crisis, showing that it is highly correlated to international stock markets. It subsequently exhibited its most meteoric rise toward the end of 2020, increased more than 15x from its 2018 lows,