March 28, 2023

Analyst: the correlation between cryptocurrencies increased in 2019

According to the observations of The Block researcher Larry Chermak, the correlation between various cryptocurrencies in the past year increased.

The expert believes that the excessive interdependence between assets creates obstacles to the effective diversification of the investment portfolio based on digital assets.

"For the further development of permissionless-financequite liquid cryptocurrency derivatives markets are urgently needed. The problem is that such markets will not be large enough and unattractive if there are no crypto assets that do not correlate with each other. ”- Chermak shared his thoughts.

According to him, the appearance of tokenized valuablesecurities may somewhat alleviate the problem, since such financial instruments will not correlate with the wide market. However, this is a separate class of digital assets, for the use of which, unlike permissionless-assets, strict compliance with KYC / AML is required.

The image below shows that the most capitalized crypto assets closely correlated with each other in price over the past year:

Analyst: the correlation between cryptocurrencies increased in 2019

The strongest relationship with other coins was observed in Ethereum, the weakest - in Tezos and Bitcoin SV. The correlation of Ethereum with EOS was the highest - 86%.

The table below shows that compared to 2018, in 2019 the situation has not changed much:

Analyst: the correlation between cryptocurrencies increased in 2019

However, bitcoin was the only asset whose correlation with other coins declined. The prices of EOS and Tron, on the contrary, have become much more dependent on the general market situation.

“Overall, price interdependence betweencryptocurrencies grew in 2019, albeit slightly. The trend towards increased correlation between assets is a concern. She testifies that the market is still far from maturity ”- concluded the researcher.

Earlier, Larry Chermak came to the conclusion that the leading crypto assets are still used mainly for speculative purposes.