Emotions in crypto markets are actually pretty simple, markets often oscillate between either bullish or bearish sentiments, and this seems obvious enough to measure with metrics from time to time. One of these metrics is known as Bitcoin’s correlation with other markets. According to the new data published bitcoin‘s correlation with the rest of the crypto market is approaching all-time highs.
Bitcoin’s Increasing Correlation with Altcoins Causes Concern
New market reports released, crypto markets data service provider Arcane ResearchHe emphasized that at the beginning of the week, Bitcoin showed a 0.90 correlation with Ethereum. Its correlation with other altcoins is much higher, at 0.91.
Current correlation coefficients hover pretty close to the 0.95 high during the 2018-2019 bear market. Arcane Research stated that the metric, which measures the relationship of Bitcoin price to other assets, shows a “generally risk-averse sentiment in the market.”
However, Arcane Research underlined that this could be a concern for the altcoin market. The altcoin market traded in bitcoin means that there is little demand to hedge the risk of holding bitcoin with altcoins. Where there is demand, there is now greater difficulty in using altcoins to diversify the risks associated with exposure to Bitcoin.
So far this year, Bitcoin and Ethereum It shows that the correlation between 0.78 and 0.90 rises from 0.78 to 0.90 and the risk aversion prevailing in crypto markets in general and the desire to return to altcoins are low.
Arcane Research also noted that the current trend is quite different from other market cycles. Previous periods of high correlation in the market resulted from sudden sharp selling. Meanwhile, the latest trend has been moving steadily for the past few months.
What Is The Correlation With Other Markets?
Bitcoin has generally fallen this year along with the S&P 500 Index. In January, as reported by Business Insider, it saw a 7% drop in the popular stock index and a 17% drop in Bitcoin.
BTC’s price action has been used to refute arguments that Bitcoin is an inflation hedge like gold. Bitcoin critics like Peter Schiff have frequently voiced this. Meanwhile, the International Monetary Fund (IMF) emphasized that Bitcoin’s correlation with traditional assets poses a threat to economies due to its high volatility.
The Bitcoin community continues to argue that Bitcoin is showing signs of reducing correlation with risky assets. Bloomberg’s Mike McGlone noted that Bitcoin is approaching a turning point in its transition to becoming a global digital collateral by showing strong “differential strength”.
Disclaimer: What is written here is not investment advice. Cryptocurrency investments are high-risk investments. Every investment decision is under the individual’s own responsibility. Finally, Koinfinans and the author of this content cannot be held responsible for personal investment decisions.