State of the Crypto-verse, 2019 Edition

The Cryptocurrency Market has Grown Significantly in 2019

The market capitalization of the top-15 cryptocurrencies has grown significantly over the start of 2019, peaking at over $325 Billion and dipping to roughly $260 Billion in late July - still more than double January’s $120 Billion cap. Trading volume has also grown tremendously thus far in 2019, and is sitting right around $60 Billion per day. This concurrent increase in asset values and trading volume implies elevated interest in the variety of coins which make up the most popular cryptocurrencies, as well as increased liquidity in the trading markets for buyers and sellers of currencies.

Crypto Market Trends

How are Cryptocurrencies Performing Relative to One Another?

As the interest in different cryptocurrencies waxes and wanes, their inherent capabilities are utilized or ignored, and public perception swings back and forth, we sometimes see large shifts in the valuation of cryptocurrency assets. This shift in prices directly moves their market capitalizations, and sometimes changes the rank-ordered listing of cryptocurrencies by total market capitalization. While no one is likely to unseat Bitcoin from it’s throne at #1, there is an increasing amount of change as one goes down the list of the fifteen largest currencies. Stellar and EOS are noticable “droppers” thus far in 2019, while Binance Coin and Tether both saw their market caps rise.

Cryptocurrency Market Capitalization Rankings

If we change our variable of interest from Market Capitalization to Trading Volume, we see a remarkably different chart, with much more significant intra-week movement between currencies. Interestingly, Tether has also crept ahead of Bitcoin on several occasions, and currently sits in the top spot in terms of daily trading activity.

Cryptocurrency Trading Volume Rankings

Crypto Prices in 2019

Given that Tether is a stablecoin and trades within a tight window centered around a dollar (observed prices vary from $0.99 to $1.02 thus far in 2019), it’s not shocking to see the rest of the cryptocurrency market (which has generally appreciated, as the first set of faceted line charts shows) exhibiting a fairly strong negative price correlation, as seen in the correlation matrix below.

What I was semi-shocked to see in this data, however, is just how tightly many of the largest crypto-currencies vary with each other. Many correlations are in the positive 0.7-0.9 range, which is much higher than the cross-correlation I would have expected. While it’s true that a rising tide lifts all boats, and there is certainly a lot of public interest in the whole spectrum of currencies, I’m surprised that there aren’t more crypto-assets with un- or negatively correlated prices to the other top currencies to enable hedging and portfolio diversification…

On the flip side, the existence of so many strong correlations in the market does suggest that utilization of the Pairs Trade is a feasible option, should the price of one currency slide too much relative to another.

Crypto Price Correlations