Study proves: high correlation of crypto assets to traditional market

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A study by Iconic Funds now suggests that Bitcoin Trader and Ethereum in particular show a high correlation with the traditional market. The reason is the high liquidity, according to the crypto company.

As BTC-Echo last reported on September 29th, the latest Bitcoin increase after last Monday’s plunge went hand in hand with the stock indices, which also recovered after brief distortions. Bitcoin investors are speculating about the reasons for this high correlation. Finally, virtual gold is often said to be decoupled from traditional market movements. After the Covid 19 crash in March, prices in both worlds moved almost in lockstep. A study of the crypto asset management company Iconic Funds now suggests that crypto currencies also generally correlate strongly with traditional markets. Liquidity plays a crucial role.

COVID-19, the downturn driver

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The Frankfurt based start-up is a joint venture between the crypto asset management group Iconic Holding and Immediate Edge. It was founded by the entrepreneurs Christian Angermayer and Mike Novogratz. Mike Novogratz is best known in the crypto space as CEO of the crypto investment company Galaxy Digital Investment Partners.

The background to the study, which was published in mid-September, was the rapid COVID-19-driven price losses that hit not only the traditional markets but also Bitcoin and Co. in March.

How could it come to this? The crypto start-up wanted to know exactly this and created a data set for the period from January 1, 2009 to March 31, 2020 – thus recording practically the entire crypto history from the Genesis block to the Corona crash. The team focused on the ten largest crypto currencies in terms of market capitalization.

Not only exception, but the rule

While for many probably the obvious explanation for the strong correlation in March was that people have the same patterns of action in times of crisis and first reject their speculative investments (stocks, crypto-currencies) in order to get cash, Iconic Funds goes one step further with its empirical study: crypto-currencies correlate with the markets not only in times of liquidity bottlenecks, but with most market movements. Thus the start-up assumes that the coupling of Bitcoin and Co. is not an exception, but rather the rule.
Crypto currencies are coherent with each other

First the study examined the coupling of the Kryptowährungen among themselves. Apart from the two exceptions Tether and LEO, the final results show that the degree of correlation between the individual crypto currencies is – with very few exceptions – very high. On the one hand, this means that the leading crypto currencies can be regarded as a coherent unit. Unless their structure and exchange rate drivers differ considerably, as is the case with stable coins like Tether. LEO also seems to have a relatively low correlation to other crypto currencies. The authors of the study cite as a possible reason for this the fact that LEO as an in-house token of the Bitcoin exchange Bitfinex does not pursue the goal of becoming a means of payment. In addition, the sale was also initially carried out exclusively privately, which limits public involvement and liquidity.
Correlation with traditional market indices

The starting point was the Pearson correlation, which was used to measure the prices of the crypto currencies with the market indices over the entire available time period. The results show that a beg