Market correlation: How are cryptocurrencies moving
The world of cryptocurrencies has seen a remarkable increase in popularity and adoption over the past decade. From Bitcoin to Ethereum and Litecoin to Monero, there are unique properties, uses and price movements of all cryptocurrencies. Despite their differences, many cryptocurrency correlations have developed with each other, influencing each other’s prices and behavior. In this article, we are immersed in the market correlation between cryptocurrencies and explores how they move together.
What is market correlation?
Market correlation refers to the relationship between different assets or investments in a given market. It measures the extent to which two or more devices move, either positively or positively (for example, when one device increases, the other device also increases) or negatively (when one device decreases, the other device tends to decrease) – the market Correlation can be used to identify potential investment opportunities and risks by analyzing relationships between various assets.
How do cryptocurrencies move together
Cryptocurrencies formed a complex correlation network. Here are some examples:
- Bitcoin is historically considered to be the “creditor” cryptocurrency because it was dominant in the early days of blockchain technology, while Ethereum became a popular platform for decentralized applications (Dapps).
- They tend to move together, influencing changes in investor emotions and market interest rates.
- Monero (XMR) and Zcash (ZEC) : These two private channels form a positive correlation. When one cryptocurrency goes up, the other tends to follow the example and vice versa.
- Altcoins : The wider cryptocurrency also saw relationships between the various altcoins. For example, bitcoin cash often correlates with other smaller cryptocurrencies such as Dogecoin (DOGE) or Verge (XVG), while Ethereum-based altcoins such as EOS and Binance Smart Chain (BSC) usually move together.
Why do cryptocurrencies correlate?
There are many reasons why cryptocurrencies correlate:
- Supply and Demand : As more and more investors enter the market, prices usually rise, resulting in increased demand. In contrast, if the supply is high and demand is low, prices are usually reduced.
- Voatality : The price of each cryptocurrencies can be influenced by global economic conditions such as interest rates, inflation and trade wars.
- Market Emotions : Investor emotions, including fear and greed, can promote the price movements of cryptocurrencies. When investors are optimistic, they tend to buy more cryptocurrencies, resulting in higher prices.
- Regulatory Environment : Changes in regulatory policies or frameworks can affect cryptocurrency markets, influencing their correlations.
Consequences for investors
Understanding the market relationship between cryptocurrencies is essential for investors who want to make sound decisions about their portfolio:
- Diversification : Investing in a mixture of cryptocurrencies, with different features and price movements, can help to alleviate risks.
- Risk Management
: It is known for the prices of cryptocurrencies that they are very volatile, so investors must have a firm risk management strategy.
- Position Measurement : Investors must set their position based on market correlation and price changes.