New Binance Research Reports: Bitcoin Exhibited Lower Correlations with CryptoAssets in 2019
In its latest report, Binance explores the relationship between the leading cryptocurrency and other large-cap cryptoassets.
During the period of last 3 months that is from December 1st, 2018 to March 1st, 2019, the USD returns for the top 30 cryptocurrencies by market cap, were “highly correlated.” among these cryptos, Bitcoin unsurprisingly came out as the “bellwether” of the industry as it showed the highest correlation with other assets.
Generally, altcoins are highly correlated with BTC but a few selected cryptocurrencies such as Waves, Tron, Bitcoin SV, Binance Coin, and Dogecoin exhibit the weaker correlations in terms of USD that could be attributed to coin specific factors that might be affecting the prices and returns on these assets.
These factors apart from project-specific news are the “Binance Effect” and consensus mechanism affecting the strength of correlation. With “Binance Effect” here, it means the digital assets that are listed on the Binance exchange that oftentimes have “higher correlation” among themselves.
Furthermore, the report says the return of Pow coins shows a higher correlation among each other than the non-PoW coins which means the type of consensus mechanism also plays a role in this correlation.
BTC-Dominations Returns in Low Correlation with Cryptos
When it comes to BTC-dominated returns, for large market cap cryptocurrencies, they have a “significantly lower” correlation than the USD-denominated returns, during the same period.
The report further explains that the weaker correlation among the digital asset as a whole could also be due to the extreme volatility in the crypto market from late 2017 to early 2018.
Moreover, the correlation of crypto returns in BTC term has been much lower in 2018 versus in late 2017. In contrast with this, the correlation between the crypto return in USD terms have increased during the same period.
Apart from the most obvious explanation for this weaker correlation, the increase in correlation in USD terms, the report states has coincided with the “rise of stablecoins pair dominance” during the year of 2018 which obviously is in line with the decline in the contribution of BTC pairs to the trade volume of the entire market.
Just a year ago, the stablecoin volume represented less than 10 percent of total crypto trading volume. Now, with the launch of new stablecoins such as USDC, PAX, TUSD, and USDS this volume increased over 30 percent. Binance itself has more than 100 stablecoin pairs.
The change in correlation though coincides the rise in stablecoin trading pairs and stablecoin volume, just like in equity markets, “idiosyncratic factors” impact the correlation of some of these coins over a specific time period.