Data suggests that Bitcoin and Ethereum have little correlation with traditional markets, implying that the cryptocurrency is determining its own fate.
Bitcoin and Ethereum have been masters of their own destinies lately
According to market intelligence platform data IntoTheBlockHowever, the correlation between BTC and ETH with traditional markets and commodities has been close to zero recently.
“Correlation” here refers to the correlation coefficient (r) of statistics, which is a measure that tracks how two quantities are related over a given period.
When the value of this measure is greater than zero for any two assets, it means that there is some positive correlation between their prices, which implies that the assets are moving in tandem. The closer this value is to 1, the stronger the relationship.
On the other hand, a negative value of the indicator indicates that although there is some correlation between the two, it is a negative correlation, where the price of one asset reacts to movements in the other asset by moving opposite to it. In this case, the maximum at which the correlation is strongest is -1.
A correlation coefficient that stands at or near zero indicates that there is no relationship between the assets. In statistics, the variables are said to be independent in this case.
Now, here's a table showing what the 30-day correlation looks like between the two largest cryptocurrencies by market cap, Bitcoin and Ethereum, versus some traditional assets:
The data for the correlation matrix of BTC and ETH | Source: IntoTheBlock on X
As shown above, Bitcoin and Ethereum correlation to these assets appears to have been low over the past month. Among these currencies, coins are the most closely correlated with the S&P 500 Index, with a coefficient of 0.4 for BTC and 0.49 for ETH.
Therefore, this means that ETH is slightly more correlated to the S&P 500 index than BTC. As such, ETH also has a clearer relationship with the others on the list than BTC, although it is still not strongly linked to any of them.
The low correlation coefficient with traditional markets indicates that cryptocurrencies have been operating somewhat independently in the past month.
Overall, correlation can be something to keep an eye on when an investor is looking to add an asset to their portfolio. Highly correlated assets compensate for poor diversification options, because they either mimic similar performance (positive coefficient) or conflict with each other (negative coefficient).
Since Bitcoin and Ethereum lack any strong connection to traditional markets and commodities, the two currencies may be viable options for traditional investors to add to their portfolios.
Bitcoin price
Bitcoin made its previous recovery over the past few days as it 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 Porthierre – Peiobty on Unsplash.com, IntoTheBlock.com, chart from TradingView.com
