14 Mar 2022

A very correlated crypto market

Correlations in the crypto markets are nearing all-time highs as both bitcoin’s correlation to ether, and the broad crypto market, has seen a steady rise over the last few months.
Source: Tradingview
The 90-day correlations in the crypto market are approaching the highs from the bear market of 2018 and 2019. This paints a picture of an overall risk-averse sentiment in the market.In the summer of 2020, the correlation was headed downwards, caused by bitcoin strength compared to alts. The correlation bottomed on Jan 9th 2021, before it grew as altcoins began moving more in line with bitcoin.On Monday, the BTC-ETH correlation sat at 0.90, closing in on its all-time high of 0.95 from May 2020.Interestingly, previous high correlation periods were caused by sudden sharp sell-offs, whereas the recent trend has seen a steadier growth. This suggests that the market overall has tended to move in the same direction throughout the last year, with altcoins in general seeing higher beta.This high correlation illustrates that diversifying bitcoin exposure through altcoins to reduce risk is a difficult process.So far this year, the correlation between BTC and ETH has grown from 0.78 to 0.9, in general suggesting a prevailing risk-averse sentiment in the crypto market and a low desire to rotate into altcoins.
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