Binance Report: Crypto Price Correlations in BTC and USD Reversed in 2018

According to a new report from leading crypto exchange Binance investigating crypto price movements since 2017, price correlations between major cryptocurrencies increased against the US Dollar but fell against Bitcoin.

Published yesterday, the report finds that the performance of cryptoassets is divergent depending on whether the returns are calculated in US Dollars (USD) or Bitcoin (BTC).

From December 1st, 2018 to March 1st, 2019, USD-based returns for the top 30 cryptocurrencies was highly correlated, but for the same period, BTC-denominated returns for the same basket of tokens exhibited far lower correlations.

Among the top 30 coins, Bitcoin exhibited the highest correlation, indicating that it is the “bellwether” — a leading indicator of the direction of the market. In other words, altcoin prices tend to move in the same direction as Bitcoin. Certain altcoins, though, exhibited a weak correlation to Bitcoin in terms of price movement, namely, Waves (WAVES), Tron (TRX), Bitcoin Satoshi’s Vision (BSV), Binance Coin (BNB) and Dogecoin (DOGE).

However, in late 2018 compared to late 2017, the correlation of crypto returns in BTC were much lower. But in the same two time periods, returns calculated in USD actually increased. This, the report notes, coincided with the rise of stablecoin pair dominance last year, and lines up with the general decline in altcoin-BTC pairs to the total trade volume in the industry.

The listed other “additional factors” — beyond project-specific news — that could have contributed to price movements and the strength of correlations. The first is what they call the “Binance Effect,” which is the notion that “digital assets listed on Binance oftentimes have higher correlations amongst themselves,” meaning coins listed on Binance  (or other exchanges for that matter), tend to move together. The other factor mentioned is the type of consensus mechanism — interestingly, PoW coins tend to move together more than non-PoW coins, however the report does not offer a theory as to why.