Forex in this article
Binance examines cryptocurrency correlation 2019
Ethereum has the highest correlation rate
Cosmos least affected
If you are interested in the crypto market, you will have noticed that the prices of cyber currencies often follow the same movements. For example, if bitcoin comes under pressure, the other altcoins usually suffer as well. So there seems to be a correlation between the different digital currencies. The crypto exchange Binance analyzed exactly what this looks like in its annual report on the correlation of cyber currencies. The background is that investors who take cryptocurrency into their depot naturally want to protect themselves against possible losses with their selection of digital coins and choose internet currencies that do not necessarily always go in the same direction at the same time.
This is how correlation is measured
“Correlation statistically measures the strength of a linear relationship between two relative movements of two variables and ranges from -1 to +1,” Binance defines the quantity to be determined. It is assumed that if the value is over +0.5, there is a positive correlation, which means that both cryptocurrencies are moving in the same direction and therefore share the same risks. If the value determined is less than -0.5, this is referred to as a negative correlation: the two values move in opposite directions. If the value is close to zero, there is no correlation, i.e. no linear relationship between the two variables.
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Ethereum at the top of crypto correlations
As can be seen from the analysis of the 20 largest cryptocurrencies measured by their market capitalization, the average correlation spectrum in 2019 varies between 0.31 and 0.69. All digital currencies are therefore in a positive relationship to each other. It is interesting to see that it is not Bitcoin that correlates the most with the other cryptoassets, but Ethereum is at the top. Cosmos’ connection to other cyber currencies is weakest. In addition, Binance found that Bitcoin is most correlated with Bitcoin Cash and Monero alongside Ethereum.
further results
By analyzing the correlations of all quarters of 2019, Binance suggests that when the overall market moves in the opposite direction, the relationship between crypto assets will become stronger. However, when the market is moving up or down, the cybercurrencies are less correlated with each other. According to the crypto exchange, however, further research is needed to support this assumption. Additionally, the analysis found that “programmable” blockchain currencies like Neo, Ether, and EOS are more strongly correlated with each other than “proof-of-work” coins (Bitcoin, Monero, etc.). In general, Binance points out that the data determined is only a rough representation of the correlations. It remains to be seen how relations will continue to develop.
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