Accelerating the transformation of the crypto market into a commodity market

The cryptocurrency market is beginning to consolidate and increasingly resemble a commodity or commodity market, with increased correlation between cryptocurrencies coinciding with the early stages of the COVID-19 pandemic, according to researchers at ‘Department of Nuclear Physics of the Polish Academy of Sciences (IFJ PAN).

Accelerating the transformation of the crypto market into a commodity market
Source: iStock / caoyu36

The statistical analyzes performed by these researchers suggest that the world market is entering a phase of maturity. From a statistical analysis point of view, it is becoming more and more clear that crypto markets can be an alternative to investing in other financial markets, says the scientific institution in a statement summarizing the results in the document.

Thanks to cryptocurrencies, for the first time in history, scientists can perform comprehensive quantitative analyzes that track the dynamics of a financial market “from start to near maturity,” he said. Stanisław Drożdżprofessor at IFJ PAN and atKrakow University of Technologywho co-authored the article.

The research answers the question of potential correlations between several specific cryptocurrencies:

  • If the performance of one cryptocurrency changes, how do the others behave?
  • Will the increase in the price of one cryptocurrency be accompanied by an increase in the price of other cryptocurrencies, a decrease in the price, or is there no interdependence?

The article studies a high-frequency time series of price returns, representing the 80 most actively traded cryptocurrencies on Binancewhich emphasizes the cross-correlation structure at different time intervals.

The researchers admitted that their analysis includes “only a small fraction of existing cryptocurrencies whose number exceeds 7,500”, but they claim that “the less a cryptocurrency is known and the less capitalized it is, the less the related data is liquid and the unless they are reliable. ” Therefore, according to them, it was “crucial” to limit their analysis to cryptocurrencies with large companies.

Jaroslaw KwapienPh.D., from IFJ PAN, co-author of the paper, found that:

“The quantitative characterizations we have performed prove that the different cryptocurrencies no longer operate independently of each other. Their market is now increasingly correlated.”

Because of these qualities, researchers have determined that today’s cryptocurrency market is similar to that of stocks that have a high correlation with each other. It also stems from the psychology of investors and the algorithms used for trading.

In addition to cross-market dependencies, the study also analyzed the trending cross-correlations between the crypto market and some traditional markets, such as stock markets, commodity markets and foreign exchange markets.

The increased correlation between cryptocurrencies coincides with the early stages of the pandemic, the statement said, “which may be related to increased investor nervousness at this point.” With this in mind, it was “natural to wonder” whether the market “thus formed as a whole exhibited a connection with other well-known global financial markets”, such as the US stock market and the oil markets.

During the analysis period (January 1, 2020 – October 1, 2021), the cryptocurrency market showed the highest correlation with the US Standard and Poor’s 500 (S & P500) stock index, which tracks the performance of 500 large listed companies on US equities. exchanges.

Marcin WątorekDoctor of Science, researcher at Krakow University of Technology and co-author of the article, noted that:

“You can also see a synchronization with the markets for other commodities like oil, copper and gold. This is a very interesting result because there were no such correlations before the pandemic and the commodity market cryptocurrencies were generally considered separate from traditional financial markets.”

The document concludes that:

“The crypto market exhibits higher levels of cross-correlation with other markets during the same periods of turbulence, where it itself is highly correlated.”


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