Cryptocurrency exchange Binance recently published a report titled, ‘Investigating CryptoAsset Cycles’. The report, may come handy for hopeful investors in the bear market.
In what will come as an eye-opener, the report states, “An estimated 7% of the cryptoassets are held by institutional investors, which is almost one-thirteenth of the institutional holdings proportion for the U.S. stock market.” It added that higher turnover rates for cryptoassets (five times higher than that of the U.S. stock market) indicate that participants in the crypto asset industry could be more active or reactionary than in traditional markets.
Trying to build a co-relation between different crypto assets, the report said, “We found that low internal correlations between some cryptoassets are often due to three main reasons:
- Idiosyncratic factors, such as project-specific news & catalysts, may influence the strength of correlations among cryptoassets.
- “Binance Effect”: digital assets listed on Binance often have higher correlations among themselves; conversely, assets not listed on Binance may have lower correlations.
- Consensus Mechanisms: a cryptoasset’s consensus mechanism could have an impact on its correlation with the returns of other cryptoassets (i.e., returns of PoW coins exhibited higher correlations amongst themselves than with non-PoW coins.)”
However, the report stated that co-relations between the cryptoassets has increased significantly which may be due to the steady decrease over the course of 2018 in the market’s reliance on Bitcoin-denominated trading pairs, and the corresponding rise of stablecoin volume in all cryptoasset markets.
It further stated that factors such as high proportion of retail investors, HODLing, “UTXO market cap” and the spot price of Bitcoin may contribute to extreme cryptocurrency-related co-relations.
The report concluded that irrational behaviour of the market should not be blamed on inexperienced market participants, but should also be attributed to market infrastructure and maturity. It further said, “However, especially after 2018, we continue to see various traditional research institutions, regulatory bodies, and media outlets paying more attention to the blockchain industry, in addition to a wave of crypto-native coverage and research being built and grown each and every day.”
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