Market correlation: how the different cryptos interact
The cryptocurrency has recorded rapid growth in recent years, with many new emerging and existing parts that earn ground. However, as for any class of activity, there are several cryptocurrencies with distinct characteristics that can affect the market correlation between them. In this article, we will immerse ourselves on the way in which the different cryptocurrencies interact with each other, highlighting the key correlations, differences and potential implications for investors.
Cryptocurrency market overview
The cryptocurrency market is strongly interconnected, various activities that influence the prices and performance of the other. This interconnection is due to the following reasons:
- Exchange registration commissions : When a new cryptocurrency is listed on an exchange, it causes list costs that are often set at 10-20%. These costs can have a significant impact on its commercial volumes and on the correlation of the market with existing cryptocurrencies.
- Safety risks : cryptocurrencies that have high safety risks can suffer greater volatility due to the greater probability of hacking or other safety violations.
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Correlation between the different cryptos
The correlations between the different cryptocurrencies vary according to their characteristics, use cases and levels of adoption. Here are some examples of how the different cryptocurrencies interact with each other:
* Bitcoin (BTC) against Ethereum (ETH) : BTC tends to overcome ETH due to its strongest recognition of the brand, its higher security standards and its most consolidated use case as a reserve of value.
* Litecoin (LTC) vs Bitcoin Cash (BCH) : LTC has historically performed better than BCH, probably due to its faster transaction speeds and lower costs than BCH.
* Monero (XMR) against Zcash (Zec) : Monero’s private transaction method was more popular among users, which caused higher prices than Zcash.
* Chainlink (link) vs Uniswap (UNI) : the connection is set at the price of BTC and ETH due to its strong correlation with these two cryptocurrencies.
Key correlations
Here are some key correlations between the different cryptocurrencies:
* Bitcoin vs Ethereum
: strongly correlated, with Bitcoin overcoming ETH in terms of market capitalization.
* Litecoin vs Bitcoin Cash : moderately correlated, with best LTC of BCH due to its faster transaction speeds and lower costs.
* MONERO against Zcash : weakly correlated, with the Monero private transaction method that leads to higher prices than Zcash.
Differences in cryptocurrencies
Different cryptocurrencies have distinct characteristics that can affect market correlation:
* Security : stronger safety standards lead to better market performance and a drop in volatility.
* Case of use : several cases of use, such as mining or payment commissions, influence the market capitalization of each cryptocurrency.
* Level of adoption : higher adoption levels lead to greater liquidity on the market, which affects prices and correlations.
Conclusion
The correlation of the market between the different cryptocurrencies is a complex problem with various factors that influence their interactions. Understanding these correlations can help investors make informed decisions while navigating cryptocurrencies market. By recognizing the correlations, differences and potential key implications for each cryptocurrency, investors can better prepare for the evolution of the panorama of this class of activity.
Additional advice for investors
- Diversify your portfolio : distribute investments in different cryptocurrencies to minimize losses due to market fluctuations.
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