3 Factors Affecting Cryptocurrency Correlation – Mehmet Ata KARTAL

In the cryptocurrency world, correlation plays very important role. There are 3 most important factor that can easily affect the price and correlation:

Consensus Mechanism
News
Market Conditions

1. Consensus Mechanism

The consensus mechanism type plays an important role in correlations of coins, as Proof of Work (PoW) crypto assets seem to show higher correlations with one another than with non-PoW assets.

BTC vs LTC vs ETH vs XRP

As we can clearly see, most of the coins in the bear market, especially PoW coins follow the Bitcoin moves. Other consensus mechanism coins generally follow the bigger moves.

*Ethereum changed their consensus mechanism with Constantinople Hardfork.

2. News

Generally, altcoins are highly correlated with BTC. News such as product development, exchange listing and the change of consensus mechanism affect the correlation.

Examples of news that affected the correlations over the bear market period:

$TRX: BitTorrent ICO on Binance Launchpad, which required TRX or BNB to participate
$WAVES: raised an additional $120 million in December 2018
$BNB: Launchpad hosted two token sales successfully and the DEX testnet went live
$BSV: Hard-fork (commonly referred to as the “hash power war”) from Bitcoin Cash (BCH)
$TOMO: Mainnet has officially been launched

For Example: $BNB

There is positive correlation between BTC and BNB. News such as DEX News and ICO Launchpad increased correlation coefficient. Price easily covered bear market losses.

3. Market Conditions

Due to market conditions, altcoins show positive or inverse correlation with Bitcoin. Depends on the performance of Bitcoin and BTC Dominance.

IMPORTANT: When BTC dominance increases, altcoins generally show an inverse correlation with Bitcoin. This does not mean that the price of altcoins will drop. Indicates a decrease in BTC parity. If you do not know what is BTC Dominance, read this “Understanding BTC Dominance” first.

For example:$XRP

There was an inverse correlation between bitcoin and altcoins from 1 April 2019 to 4 April 2019

While XRP/USD increased %18.70, XRP/BTC showed us %11.5 decrease. Because BTC price increased more than 27%.

I hope this reading will help you to understand importance of 3 Factors, Bitcoin Dominance and Correlation. If you want to maximize your profits, do not forget to read this article. Thank you…

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Published at Fri, 30 Aug 2019 22:59:37 +0000

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