Altcoin News: Binance Research Has Published a Report on the Correlation of Prices of Cryptocurrencies

April 29, 2019, by Marko Vidrih on ALTCOIN MAGAZINE

The new report by Binance Research emphasizes the correlation between the various “clusters” of cryptocurrencies and concludes that Ripple’s XRP offers a “diversifying” position for investors.

At the end of the week, Binance Research published a report detailing the correlation between different cryptocurrencies. The report concludes that the largest cryptocurrencies, such as Bitcoin and Ether, show the highest positive correlations or “clusters”. This positive correlation means that BTC and ETH prices tend to follow the same market trends. As prices tend to change at the same time, investors are exposed to similar benefits and risks.

Ripple, on the other hand, showed less correlation with BTC and ETH trends and was named in the report “the best diversifier among digital assets with a market capitalization of more than $3 billion”. The Binance study also noted other data on the relationship between different cryptocurrencies. One cluster was identified for the following assets: BTG, BCH, ETC, and LTC.

At the same time, other coins showed price action due to the fact that they are traded (or not traded) on specific exchanges. In particular, we are talking about the “Binance Effect” and “Listing Effect on Coinbase”. For example, Tezos and Dogecoin, two assets missing in the Binance listing, each formed their own “child” clusters. The situation is similar for assets added to the Coinbase listing — they also formed similar cluster groups (for example, XLM).

Clusters

Binance researchers focused on the top 30 cryptocurrencies by market capitalization, and their prices in US dollars were taken from CoinMarketCap. Stablecoins were excluded from the study along with any crypto active assets that were backed up by other assets, “digital or physical.”

A 30-day moving average was used for market limits, and 30 “unsecured” major assets were selected for the study. The range of research covers the period between March 31, 2018, and March 31, 2019. The figure below shows a weekly matrix of correlation coefficients.

Image credit: Binance

The study also formed the final set of clusters. Researchers have found that some “confidential coins,” such as Dash and Monero, form a single cluster. However, to avoid absolute conclusions, the report contained a clause:

“On the other hand, performing K-Means clustering on risk-return profiles of each cryptoasset did not return any meaningful results. One potential explanation is that return & volatility profiles are not related to underlying price co-movements over the study period.”

The Binance team noted that since the previous report, the overall correlation in the cryptocurrency market has increased, which may be due to the rise of stablecoin volume, and the corresponding increase in pair offerings, in all crypto asset markets, the report said.

Author: Marko Vidrih