Market update: Correlations in the crypto market continue increasing

18 Apr 2022

Market update: Correlations in the crypto market continue increasing

The bitcoin price increased 2% over the past seven days after one of the least volatile periods in a long time, as the market seems to have come to terms with the 40-year high CPI numbers released last week.

Correlations in the crypto market are rising. On the chart we can see how closely BTC and ETH have followed each other over the past seven days, and their 90-day correlation is nearing all-time highs.The increased correlations between the largest cryptocurrencies are part of a broader trend of increased correlations in the financial markets. Bitcoin's 90-day correlation with the S&P 500 is currently sitting at an all-time high of 0.58, while its correlation with the tech-oriented Nasdaq index is even higher.

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Source: CoinMetrics

Since the different cryptocurrencies have become so correlated, most of the top 50 coins by market cap have performed similarly over the past seven days. ApeCoin has performed the best with a 14% gain. The poorest performer of the top 50 is Klaytn, with an insignificant 3% decline, showing us how stable the broader market was over the past seven days.

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Source: CoinGecko, messari.io

Market stabilizes after mid-April sell-off

After a week of tight consolidation, the index performances align closely with what we saw last week. Bitcoin and the Large Caps are still moving in tandem, seeing losses of 10% so far in April.Smaller coins have underperformed the Large Caps and bitcoin, with both the Mid Caps and Small Caps indexes nearing losses of 20% 19 days into April.

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Source: Bletchleyindexes.com, Bitfinex

The underperformance among smaller coins aligns with what we usually expect within the crypto markets, as they tend to act as more volatile exposure alternatives to crypto, i.e., carrying a higher beta to the market direction.Overall, correlations within the crypto market remain unusually high, similar to BTC’s correlation with the Nasdaq Index.

Fear still roars after a slow week in crypto

The market remains more or less unchanged from last week, as it stays in a fearful state following bitcoin's tight consolidation around the $40,000 area in the last week. Overall, low retail interest, shallow volumes, and a very muted futures premium further confirm the poor sentiment highlighted by the Fear & Greed index.

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Source: Alternative.me

Volumes stabilizing at the 2021 summer lows

It’s been a dull and flat week in bitcoin, and the market action currently resembles what we saw last summer, as the 7-day average real bitcoin trading volume sits at $3bn, on par with the levels we saw last July before the market woke from its slumber. The drowsy volume is accompanied by unusually low volatility (slide 8) and banking holidays related to the Easter holiday.

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Source: Skew, Tradingview (Binance, Binance US, Bitfinex)

Bitcoin’s 30-day volatility reaches lowest level since Nov 2020

Bitcoin’s dull price action over the recent month led bitcoin’s 30-day volatility to reach its lowest levels since November 5th, 2020, on Saturday, April 16th. The low volatility regime back in the fall of 2020 held for nearly three months from late September until early November, but such prolonged low volatility periods are unusual. The 7-day volatility has climbed above the 30-day volatility, which could suggest that the market is waking up.

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Source: Tradingview (Coinbase)

Bitcoin keeps resting at the $40k support

Bitcoin found strong support at $40k and traded close to this price for the past week, in a remarkably low-volatility fashion.For prolonged periods in the first three months of 2022, bitcoin ranged between $35k and $45k, meaning that in addition to building up a strong support level around $40k, bitcoin also has strong support at the levels just below.Towards the downside, bitcoin found support and made a strong recovery from $38,000 this weekend. Both $38,000 and $35,000 are key support levels from this prolonged trading range.Towards the upside, $45,000 still remains a key resistance area.Further towards the upside, $48,000 is the next resistance area to pay attention to. Marking both the yearly open and the March highs.

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Source: Tradingview, Coinbase