A rigorous statistical approach to cryptocurrency
An interesting paper entitled “Multivariate Analysis of Cryptocurrencies”, edited by Prof. Vincenzo Candila of the University of Salerno, addresses the topic of correlation of the cryptocurrency market trend with statistical methodologies.
The study is based on the application of rigorous multivariate methodologies to a series of data covering 1671 days (6/2016-12/2021) of the performance of 7 of the most widespread cryptocurrencies:
- Bitcoin
- Ethereum (ETH)
- Lithium
- Stellar
- Ripple (XRP)
- Dashcoins
- Dogecoin
The techniques used go well beyond what is studied in basic statistics courses at university. The logic, however, is always to find indicators that support conclusions in terms of the existence of correlations, i.e. price trends linked to each other over time. The conclusions of the study confirm what is intuitively evident to anyone interested in cryptocurrencies and spend some time looking at the dashboards of the main exchanges:
- Cryptocurrencies price generally appear to be tightly linked. That is, they rise and fall in a coordinated manner, although some may appear to fall out of the pack during particular events. We have had many examples in this regard, even in recent times. Just think of the movements of Dogecoin, a crypto created almost as a joke, pumped up by the words, sometimes at least apparently freely, of Elon Musk. Or XRP which is recurrently affected by the milestones on the progress of the legal dispute with the SEC. But, making the necessary distinctions, the market is generally coordinated.
In short, in this sense the crypto market does not appear to be very different from the general stock market, where stocks that move against the trend compared to the indices obviously exist but remain in fact against the trend. One difference is that here there is not (yet?) an official index like the FTSE, MIB or the S&P500, also because in this case there is no daily, weekly or monthly closing. The cryptomarket works continuously 24/7 on a worldwide basis. - Bitcoin acts as a price maker. If Bitcoin goes up, the other cryptocurrencies (the so-called altcoins) go up, if Bitcoin goes down, the altcoins go down. Even in this, the crypto market is not that different from the traditional one, even if objectively, it is difficult to find securities with a similar strength to that of Bitcoin in traditional stock markets.