Nowhere to Hide In Crypto as Digital Asset Ties Tighten in Slump
(Bloomberg) -- Bitcoin’s ties to other cryptocurrencies are becoming suffocating in the rout.
Digital coins are famously uncorrelated to other assets but they’re highly correlated with each other. That lifted the whole market up last year, but this year it means they’re all falling together, leaving crypto investors with little refuge.
Correlation between Bitcoin and MVIS CryptoCompare indexes of the 10 biggest and the 100 smaller coins has picked up since the assets made new highs between December and January. Correlation has jumped to 0.7 from lower than 0.1 at the start of the year, where 1 signals a strong positive correlation (assets moving in the same directions), and -1 signals a strong negative correlation (asset moving in opposite directions).
While 0.7 indicates assets are moving almost in lockstep, the level is slightly lower than the high of 0.9 in April, as the rout in smaller coins deepened. As a result, Bitcoin’s share of the total crypto market has increased to 55 percent, the highest since December, according to CoinMarketCap.
Cryptocurrencies remain uncorrelated to any other major asset. When testing Bitcoin’s correlation against major stocks, currencies and commodities indexes, the coefficient rarely swings above 0.5.
©2018 Bloomberg L.P.