Binance Research Findings: Correlations within crypto industry on decline


Second quarter data is now in the history books, and the analysts at Binance Research have determined that existing correlations that have been prevalent in the crypto industry for the past few years are now in decline. Binance Research, a division of the world’s largest and popular Binance exchange, provides in-depth analysis and data-driven insights for investors in the crypto space.

Over the past decade, Bitcoin has evolved to be the dominant player in the crypto-sphere, commanding more than a majority of the entire market share of all token programs. Analysts have also noted from time to time that ebbs and flows of capital within the crypto space are such that when Bitcoin is favored heavily in the market, other altcoins do not do nearly as well. When Bitcoin eventually retracts, there tends to be a rally in altcoins, as investors increase their tolerance for risk. When that tolerance for risk declines, Bitcoin can act like a “safe haven” within the crypto space, as well.

As reported, the second quarter was filled with drama: “The second quarter marked the third best quarter the crypto industry has seen since 2014 and the highest growth since 2017. During this period, Bitcoin’s price increased by 300%, pushing its market dominance to above 60% and marking new highs for the year. This played a part in the significant decrease in its correlation with other cryptoassets.”

According to Binance Research: “Correlations declined between Bitcoin and altcoins, with a decrease in average correlation of -0.11. The overall market capitalisation rose by 139%, whereas altcoin aggregated market capitalisation (including stablecoins) increased by ‘just’ 71% over the same period.”

The data is signaling a greater differentiation between various token programs, as each subgroup develops its own unique idiosyncrasies. In other words, the word “altcoin” is far too inclusive, when attempting to discover correlations between factors in today’s evolving marketplace, i.e., news and events, and pricing behavior. For example, there has yet to be the much anticipated “altcoin rally”, even when Bitcoin has pulled back. Yes, there are programs that have outperformed Bitcoin, but most have not.

Other key findings from the report were:

  • The decrease in crypto correlations was also seen in some Proof-Of-Work cryptoassets such as Bitcoin Cash, Dogecoin, Ethereum Classic, Bitcoin Gold, and more, which exhibited lower average correlations than before.
  • Privacy coins display higher than average correlations with each other.
  • Similar functions (e.g. Ripple with Stellar Lumens) seem to lead to higher than average correlations between two cryptoassets.

Observers have commented that these findings are healthy and represent a beginning of a “culling of the herd”, so to speak. Investors are deciding which programs are worthy for support and which ones are not. Bitcoin dominance, as measured by its market share of the entire industry, would necessarily increase under these circumstances, until another rival or group of rivals challenge its hold on the industry going forward.

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