Technologists are seeking to understand whether there is a correlation between the price movements of bitcoin and other cryptocurrencies and crypto assets.
When looking for a correlation, this will tend to be based on which asset and which time period you look at, according to a recent CoinDesk Analysis of CryptoCompare data through February 2017. In some cases, it seems like the situation is clear as cryptocurrencies have repeatedly entered periods where several have moved together.
For instance, alternative protocol assets rallied following the Security and Exchange Commission's (SEC) March 10th rejection of a proposed bitcoin Exchange Traded Fund (ETF), after suffering widespread losses roughly one month earlier. Yet in other scenarios, bitcoin's losses have resulted in gains for alternative cryptographic assets.
Some factors analysts have cited as being responsible for these price relationships is major events in the cryptocurrency space. These included the roller-coaster ride of the distributed organization The DAO or the SEC's ETF rejection.
Towards the event, bitcoin prices surged past $1,300, reaching an all-time high. Following the ruling, bitcoin prices plunged about 30%, while other digital currencies experienced a rally that pushed some to new and exciting all-time highs.
Ether, for example, surged more than 200% in the week or so after the SEC shot down the proposed fund, according to CoinMarketCap. Likewise, the price of monero rose more than 100% since the ruling at points, while ether classic also saw notable gains.
In certain instances, the markets develop clear trends where many cryptocurrencies move either higher or lower over specific periods of time. During others, these digital currencies may display little or no price correlation. This can be seen by analyzing BTC/LTC (litecoin), as price data trending back to the final quarter of 2013 shows six quarters where the pair's correlation surpassed 0.7, and three quarters where it exceeded 0.8. This strong, positive relationship makes sense, as litecoin is to some extent a 'spin-off' of bitcoin, using similar technologies and designs.
It's important to keep in mind that bitcoin and litecoin prices have not always had a strong relationship, as their correlation has at times broken down. ARK Invest's Chris Burniske has noted that leading up to the SEC's decision on the proposed Winklevoss ETF, the two digital currencies moved in different directions.
As the cryptocurrency space develops toward maturity, however, the individual digital assets that compose this market may progress in terms of carving out their own individual niches, a development that could cause their price determinants to change over time. If these digital currencies successfully manage to differentiate themselves in the eyes of traders, their correlations could deteriorate further.
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