Data shows that Bitcoin and Ethereum have little correlation to traditional markets, implying that the cryptocurrency is shaping its destiny.
Bitcoin and Ethereum have recently been masters of their destiny
According to market intelligence platform data In the blockthe correlation between BTC and ETH with traditional markets and commodities has been close to zero recently.
THE “correlation” here refers to the statistics correlation coefficient (r), a metric that tracks how two quantities have been connected over a given period of time.
When the value of this measure is greater than zero for two assets, it means that there is some positive correlation between their prices, implying that the assets are moving in tandem. The closer this value is to 1, the closer the relationship.
On the other hand, the negative value of the indicator suggests that although there is some correlation between the two, it is negative, because the price of one asset reacts to the movements of the other by moving at opposite of it. In this case, the extreme where the correlation is strongest is -1.
Correlation coefficient equal to or close to zero suggests no relationship between assets. In statistics, the variables are called independent in this case.
Now here’s a chart that shows what the 30-day correlation looks like between the two largest cryptocurrencies by market capitalization, Bitcoin and Ethereum, compared to some of the traditional assets:
The data for the correlation matrix of BTC and ETH | Source: IntoTheBlock on X
As can be seen above, Bitcoin and Ethereum appear to have a low correlation with these assets over the past month. Of these, the coins are most correlated to the S&P 500, with a coefficient of 0.4 for BTC and 0.49 for ETH.
So, this would mean that ETH is slightly more correlated to the S&P 500 than to BTC. So ETH also has a greater relationship with the others on the list than BTC, although it is still not highly correlated to any of them.
The low correlation coefficient with traditional markets suggests that cryptocurrencies have operated more or less independently over the past month.
Generally, correlation can be something to watch out for when an investor is looking to add an asset to their portfolio. Assets that have a high correlation compensate for poor diversification options, because they would mimic similar performance (positive coefficient) or counterbalance each other (negative coefficient).
Since Bitcoin and Ethereum have no strong correlation to traditional markets and commodities, both coins can be viable options for traditional investors to add to their portfolios.
BTC Price
Bitcoin retraced its earlier recovery over the past few days and returned to the $61,100 mark.
Looks like the price of the asset has been sliding down over the last few days | Source: BTCUSD on TradingView
Featured image by Pierre Borthiry – Peiobty on Unsplash.com, IntoTheBlock.com, chart by TradingView.com
