Weekly Market Report-Aug 31st, 2019
This weekly report aims to provide an overview of the crypto markets focusing on secondary market trading. Though nothing here is investment advice, we hope this provides some useful and targeted information.
Market Overview
We are focusing our market overview on the top 100 tokens from CoinMarketCap and the sector classification is roughly in line with what MyToken uses with some minor modifications. We will be continuously updating the sectors and their constituents as we develop a deeper understanding of the crypto ecosystem.
This week’s new participants in the top 100 coins:
BEAM, ZEN, FTM, SNX, PAI, STRAT, SOLVE, NEXO, ZB
Coins that dropped out of the top 100 coins compared with last week:
ECOREAL, XMX, VEST, CCCX, ODE, NET, JCT, MXM, XIN
Rolling Returns of Top 100 Tokens by Sector
Futures vs Spot Premium
Here we are using daily closing price of BTC/USD futures contracts from OKEx and Bitmex. Futures premium is the price difference between futures and spot, normalized by the spot price.
Returns vs Volatility
This is a look at the mean and total daily returns vs volatility for the 15 sectors as well as the overall crypto and equity market. Some sectors only contain one or two coins/tokens while others have more than a dozen –
We abbreviated the names of several sectors to make it easier to view:
M = Market
DC = Digital Cash
CP/MP = Computing Power/Mining Pool
A/M = Advertising/Media
G/E = Gaming/Entertainment
C = Classics
D/GT = Dividend/Governance Token
E/T = Exchange Token
OC/I = Off Chain/Interoperability
Correlation Between Daily Returns by Sector
Correlation between daily returns of each sector for the past 90 days. Correlation ranges between -1 and 1. A correlation close to 1 or -1 means a very positive or negative relationship between the two subjects, respectively. A correlation close to 0 means no linear relationship between the two subjects.
Rolling Correlation With BTC
90-day rolling correlation between Bitcoin and the top 10 altcoins for the past 24 months
Fear and Greed Index
The fear and greed index is derived from two sources of data — 1. market data, which includes price volatility, momentum, volume, Bitcoin dominance, and 2. investors’ sentiment data, which includes Google search trends, social media (twitter sentiment analysis), and surveys conducted by strawpoll.com.
A value of 0 means “Extreme Fear” while a value of 100 represents “Extreme Greed”. In the event of “Extreme Fear,” investors may be overreacting and the market may be oversold, which presents a buying opportunity and vice versa.
Focus Spotlight — Bitcoin correlation with the global market
Earlier this month, Tom Lee, the founder and head of research of Fundstrat, said that cryptocurrency is a hedge against global risk. With the recent economic slowdown along with rising political tension around the world, many find crypto as an alternative for value preservation in this time of uncertainty.
For months, news regarding Bitcoin’s correlation with traditional assets has led to heated discussions within the crypto community with enthusiasts calling Bitcoin as digital gold. In the following, we will be examining Bitcoin’s correlation with the stock market, the yuan, and gold.
Bitcoin and the Stock Market
Though many claim Bitcoin to be a hedge against the stock market, existing data suggest that this may not be the case- at least for now. In 2017, both Bitcoin and the US stock market experienced a major rally and recorded notable gains. In 2018 they both started plummeting. However, the 90-day correlation shows a relatively weak relationship with the correlation hovering between 0.3 and -0.3 over the past few years.
The two recent highs appeared in late 2018 and in April 2019. In Q1 2019, the stock market rallied with the S&P 500 and Dow Jones Industrial Average climbing 12%. In the same period, Bitcoin saw an 11% recovery.
In the following months, Bitcoin continued its rally with its return rate surpassing 100%. As for the stock market, the YTD return is nearly the same as in Q1. The 3-month correlation between BTC and S&P currently sits at -0.08, which indicates nearly no correlation between the two assets.
Bitcoin and the Chinese Yuan
Earlier in August, Bitcoin’s price surged nearly 8% from $9,500 to $12,000. Many believed that the increase was attributed to the escalating trade tensions between the US and China. On Aug 5th, the yuan fell to an 11-year low, weakening below 1/7 of the dollar. Meanwhile, Bitcoin price broke above $11,000, which left investors wondering if Chinese investors had shifted their money from the yuan to cryptocurrencies.
BTC/USD vs USD/CNY
Though Bitcoin’s price rally appears to be perfectly linked to the devaluation of the yuan, in the long term, we do not see such a clear relationship. The chart above shows the correlation between the daily returns of CNY/USD and Bitcoin. This is the first time that the correlation has dropped below -0.25. Yet a correlation of -0.25 is still perceived as rather weak.
Bitcoin vs Gold
According to a Bloomberg report in early August 2019, Bitcoin’s correlation with gold has nearly doubled over the past three months. From May to August, the two assets were moving in tandem nearly 60% of the time.
The report states that the correlation over the last year was 0.496, whereas in the past three months it climbed up to 0.83. Unfortunately, Bloomberg did not provide further details regarding their calculation methodology nor their source of data, and their results contradict from the numbers provided by Coinmetrics, which uses Bitcoin price data from CoinMarketCap.
According to Coinmetrics, the correlation started to strengthen in June 2019. However, the 90-day correlation is still hovering below 0.25, which is considered to be moderately weak.
Though Bitcoin and gold both saw an upward trend in Q2 2019, the strong correlation between the two assets seems to be short-lived, as price movements began to diverge in the second half of August.
Final Thoughts
As the data suggests, Bitcoin’s price correlations with fiat investment classes appear to be questionable. Though experts claim that the crypto market is maturing and that it is becoming more integrated with the financial market, we still lack concrete evidence.
Bitcoin may not serve as a hedge for traditional assets, however, the absence of correlation remains as one of the major advantages of crypto for those looking to diversify their investments.
Thank you for reading this week’s report! Please leave a comment below to share your thoughts and ideas on crypto trading!
Data Source
We included data from sources such as CoinMarketCap for analyzing price movements, volatility, mean daily return, and correlations between tokens and sectors; MyToken for sector breakdown; Kronos Research for OKEx and BitMEX futures premium; Alternative.me for fear and greed index; Coinmetrics and TradingView for Bitcoin price and correlation charts; and Bloomberg report for Bitcoin and gold correlation analysis.
Stay Tuned Here
KRONOS is a leading quantitative research firm based in Taipei, Shanghai and Beijing. We’re bringing new asset management strategies to the crypto world by leveraging our combined decades of experience trading in global traditional markets.
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