Cryptocurrencies are changing their behavior in 2019, as can be seen in the correlation metrics. If 2018 had been one of the most “synchronized” years for digital assets with 75% of top 200 coins having a correlation of 0.91 with Bitcoin, performance in 2019 seems to be changing.

As it had been highlighted in Atecs Capital chart analysis many times, Bitcoin continues to be a market “bellwether” and how it performs affects many other cryptocurrencies.

BTC-ETH correlation still strong

In the Binance research called “Are Crypto Assets Highly Correlated?”, the famous exchange platform came to some interesting conclusions. In particular, large-cap cryptocurrencies were highly correlated between December 2018 and March 2019, if we talk about the returns in US dollars.

The exchange took the top 30 largest cryptocurrencies by 90-day average market cap, and it turned out that the average correlation between Bitcoin and Ether had been 0.767.  We can easily notice that most of the largest tokens by market cap had a synchronized performance in 2019, and Binance concluded that this is due to the rise of stable coins pair dominance during 2018.

On the other hand, correlations in BTC terms had been much weaker in 2019, in line with the overall decline in the contribution of BTC pair in the global market trading volume.

Source: pixabay.com

During 2017, Bitcoin moved from $735 to a peak near $20,000, as Atecs Capital chart analysis stated. Ether moved from $8 to a peak located around $1,440 in the same period. The correlation between the two largest coins dropped on an annual basis in 2018, when Bitcoin dropped from the highs towards $3,200, and Ether dropped towards the $82 area, losing more than 90% of its value.

The bear market favored Bitcoin due to its “crypto safe haven” status, but now that the bullish momentum returned, both Bitcoin and Ether move in a synchronized fashion.

Cryptocurrency trading with high correlation

Generally speaking, a higher correlation between assets means it is much harder to diversify and spread the risk. However, since we can notice the correlation is very high just between large-cap cryptocurrencies, 2019 could mark the beginning of new market behavior.

According to the Atecs Capital chart analysis, large-cap cryptocurrencies are near overbought territory, which could result in cyclical behavior. With the top tokens already banking strong gains, cryptocurrency investors might gradually shift towards lower-cap tokens that are right now undervalued and have greater upside potential.