The signs it's time to pull out of Bitcoin investment
So you've flogged both your kidneys and sold your Apple shares to invest in Bitcoin -- congratulations on a worthy investment.
But how do you know when to cut and run? Bitcoin is still a young and fickle currency, so at what point do you bow out with your profits in tow?
According to a new report, a spike in searches for Bitcoins can be a good predictor of an imminent crash in its value.
By studying the web activity and social media chatter generated by Bitcoins, a group of Swiss computer scientists have come to the conclusion that four key variables govern the way the virtual currency behaves.
First is the size of the user base; second is the number of searches for information; third is the amount of information shared; fourth is the price.
Using these four factors, the team at the Federal Institute of Technology in Zurich managed to find two positive feedback loops that steadily influence how much each bitcoin was worth.
The first "reinforcement cycle" involves a spike in the amount of online searches being carried out around the currency. This leads to more chatter about Bitcoins, and in turn prompts a rise in its value.
This makes a lot of sense -- the more public attention something gets, the more people will invest and the more its price will surge.
The second feedback loop involves a rise in search volume which makes more people download the software and join in the mining pools that generate coins. This too tends to lead to a rise in the nominal value of Bitcoins.
Trouble is, these can often be just spikes. The topics of online chatter frequently rotate, and interest can plummet as quickly as it generates. Watching the public's attention to Bitcoin carefully will enable you to time carefully the best time to invest and the best time to pull out with profit.
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