A Binance Resreach report highlights the correlation between various cryptocurrency ‘clusters’ — concluding that Ripple’s XRP token offers a ‘diversifying’ position for investors.
The report concludes that the largest cryptocurrencies, such as Bitcoin and Ethereum, showed the highest positive correlations or “clusters.” This positive correlation means that the prices of Bitcoin and Ethereum tend to follow the same market trends. For investors, it means that as the prices move closer together, they are exposed to roughly the same risks and gains.
Ripple (XRP), by contrast, showed less of a correlation with Bitcoin and Ethereum’s trends and was named “the best diversifier among digital assets with a market cap above $3 billion” in the Binance study.
The report also found that there was a single cluster for Bitcoin Gold, Bitcoin Cash, Litecoin and Ethereum Classic. It also noted that some other coins exhibited price action from being (or not being) listed on specific exchanges: namely the “Binance effect” and the “Coinbase listing effect.” It gives the example of Tezos and Dogecoin, which are not listed on Binance, and have individual clusters, while on Coinbase, Stellar (XLM) showed a similar pattern.
The Binance researchers used a 30-day rolling average for market caps and the 30 “non-backed” (no stablecoins were included) largest assets were selected for the research. The date range covered the period between March 31st, 2018 and March 31st, 2019.
The Binance team also noted that since its previous report, the overall correlation across the cryptocurrency market has increased,” which may be due to the rise of stablecoin volume, and the corresponding increase in pair offerings, in all crypto asset markets.”