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A statistical eye on the world of Crypto: Market linkages
The cryptocurrency market for quite some time now seems to show an increasing correlation of price changes against major stock market indices. The correlation of the price change of the largest cryptocurrency (Bitcoin) for the last 3 months against the S&P index is 0.60, which is at the same level as it was 3 months ago. A slightly higher correlation is noted for Bitcoin against the NASDAQ index, which is 0.62 (we also note the lack of change from the last 3 months). The correlations in the cryptocurrency market (not including stablecoin rates) seem to be interesting. There was a declining but still very high average correlation of the largest 50 cryptocurrencies against Bitcoin for the last 3 months, which reached 0.64, a decrease of 12 percentage points (Previously 0.76).
What are the current risks?
The falling volatility in the crypto market seems interesting too. For Bitcoin in the studied period of the last 3 months, it amounted to 3.28% per day (previously 5.10%), on average for the 50 largest it amounted to 4.73% (previously 7.68%). However, these continue to be significantly higher relative to the previously mentioned indexes (S&P and NASDAQ), whose performance is as follows: 1.53% (previously 1.81%) and 1.93% (previously 2.38%).
Based on this data, we learn, according to the theory of statistics, that Bitcoin's price is described by 36% (0.60^2) by changes in the S&P index, which is theoretically quite high and may indicate compatibility between these markets. Similarly, the correlation of cryptocurrencies against Bitcoin is similar. It averages 41% (0.64^2). As we noted earlier, these correlations have not changed much from the last 3 months. Therefore, Bitcoin's price may have been a good indicator of the direction of stock indices before the session opens and a poor form of diversification before the stock market declines. If the linkages do not change, cryptocurrencies and especially their king may follow the spectre of crisis in the global economy.
Author Bio
Daniel Kostecki is an award-winning senior market analyst and a Director of the Polish branch of Conotoxia Ltd. He is a victor of the FxCuffs statuette for “Blog of the Year” and “Personality of the Year”. He has 15 years of experience on the financial markets and a diploma in Economics from the University of Szczecin in Poland. Daniel isprivatelyconnected to the financial markets since 2007 and professionally - since 2010. Author of numerous commentaries and analyses of the situation on the financial markets and a guest on Polish TV, press and radio.
Disclaimer
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