Ripple’s XRP Token Offers “Diversification” to Investors According to Latest Binance Research
A recent Binance Research Report took on a different approach in understanding crypto assets. Cluster analysis, which is a technique that helps to group/ classify objects under one umbrella, popularly known in statistics, has been used to explore the top 30 cryptoassets retrieved from CoinMarketCap.
Interestingly, a correlation matrix was plotted and found that Bitcoin and Ethereum had the highest correlation, while Ripple showed a low correlation. The latter finding led Binance Research to conclude that the XRP token is the:
“Best diversifier among digital assets with a market cap above $3 billion.”
Here’s a look at the correlation matrix plot:
Source : Obtained from Binance.com
To start off, the red boxes in the diagonal should not be looked at because it is the correlation with oneself, i.e. correlation between Bitcoin and Bitcoin, which will always be 1. The different shades of blue indicate a weak correlation between two assets and any shade closer to red implies a strong correlation.
In addition to the strong correlation between Bitcoin [BTC] and Ethereum [ETH], other pairs include BTC and NEO (0.87), OMG and ADA (0.90), QTUM and ADA (0.90), etc. Apparently, Binance Research found that the assets with a high correlation are “among large-cap digital assets”. Another interesting finding is that PoW assets seemed to have higher correlations with each other than non-PoW.
Getting back to Ripple, the correlation matrix seems to show a relatively strong correlation between Ripple and Stellar (0.73), recall that the latter was forked from the former. Here’s what was shared in terms of the findings:
“As of today, Stellar and Ripple code does not rely on the same common core. Yet these two digital assets still share several similarities as they both aim to “reshape the global remittance industry.”
Hierarchical Clustering: Dendrogram
The following diagram groups assets with similar characteristics. This diagram is built based on the correlation matrix:
Source : Obtained for binance.com
As you can see, the first cluster includes DOGE, XRP, BAT, LINK, XTZ, ONT, WAVES (green), then we have several sub clusters within the larger red cluster. One thing that Binance Research discovered in terms of the clusters is that they may be grouped according to country. For instance, the green cluster carries digital assets in which the investors reside/located in America.
The same was found in terms of the cluster containing ADA, QTUM, NEO and OMG – all based in Asia. Other clusters are grouped according to the nature of the coins, i.e. privacy coins and forked coins, then we have market cap to consider, and “Binance effect and Coinbase listing effect,” reports Binance Research.
Finally, investors should keep in mind, is that the use of this type of statistical tool is fairly new to the crypto market. While the findings are intriguing, one should be cautious of the decisions made based off of them.
To further indulge in Binance Research’s findings, visit: https://info.binance.com/en/research/marketresearch/cluster.html