Weekly Market Report-Aug 3rd, 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:
GRIN, FST, RIF
Coins that dropped out of the top 100 coins compared with last week:
CCCX, QBIT, STRAT
Rolling Returns of Top 100 Tokens by Sector
Returns of the top 100 Tokens by sector from July 2, 2019, to Aug 1, 2019
Futures vs Spot Premium
Futures premium on OKEx and BitMEX from July 2, 2019, to Aug 1, 2019
We are using BTC/USD futures contracts from OKEx and BitMEX. Futures premium is the price difference between spot and futures 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 –
Mean Daily Return vs Volatility from July 2, 2019, to Aug 1, 2019
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 of Each Sector
Correlation between daily returns of each sector from May 1, 2019, to Aug 1, 2019. 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.
Focus Spotlight — Crypto Market Correlation
Despite a major correction in July, the overall performance of the crypto market has remained solid in 2019. According to CoinMarketCap, the total market cap has increased from $61 billion $95 billion.
Since the first edition of our research report, we have been keeping a close eye on the relationship between daily returns of different sectors within the crypto market. In the past 6 months, we find that the overall market correlation has dropped slightly. Meanwhile, correlations among certain sectors such as BTC and stablecoins have risen by a significant amount. Nevertheless, changes have been minor from week to week.
In the following, we will be looking at the changes in correlations across different time periods. We will be focusing on the top 26 coins that have been present since 2017 and are still in the top 100 tokens by market cap. The graph below shows the rolling correlation between BTC and these altcoins.
One token that stands out from the rest is USDT. In 2017 and 2018, correlation between USDT and BTC had been fluctuating above and below 0 with no distinct pattern. In 2019, it began a steady climb and in Q2 2019 the 90-day correlation reached 0.41, which is unreasonably high given that it should have little or no relationship with other tokens.
As shown from the two graphs above, the market was comparably less correlated prior to 2018. Many tokens exhibited a negative correlation with Bitcoin. Following the crypto bull run in late 2017, correlations for most tokens rose above 70% and maintained a similar level throughout 2018. Due to the bearish sentiment in 2018, the majority of tokens were tied to Bitcoin’s downward momentum and thus shared a strong positive correlation. In 2019, however, we see a gradual decline as the market recovers.
The following charts show the correlations among the top 26 tokens for each quarter since 2017.
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Despite the meteoric rise in crypto prices in late 2017, top tokens displayed a weak correlation in Q4 2017. However, correlation quickly rose as the market reversed from bull to bear at the start of 2018. These tokens continued to increase their strong correlations throughout the first half of 2018.
Q3 2018
Q4 2018
Q1 2019
Q2 2019
From previous market cycles, we find that correlation spikes upward during a bull to bear market reversal and remains highly correlated until the start of the next bull run. On the other hand, top tokens show a slightly weaker correlation during market rallies, as observed in Q4 2017 and Q2 2019.
As the market correlation declines, investors are encouraged to diversify their crypto investment to reduce idiosyncratic risks. At the same time, investors also are presented the opportunity to achieve higher returns through careful selection of Bitcoin and altcoins.
Thank you for reading this week’s report! Please leave a comment below to share your thoughts and ideas on crypto trading!
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 each sector; MyToken for sector breakdown; Kronos Research for OKEx, BitMEX and Binance trade history and order book data.
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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