From intensified SEC action against the cryptocurrency market, to declines in the value of bitcoin and other digital currencies, to the troubles of the long-struggling Silvergate bank, which has a significant share of the cryptocurrency market, a lot has happened in the digital currency market since the beginning of this year. We take a look at the current situation in this market based on the data.
Declining dependence of bitcoin on the market
Since the beginning of the year, the S&P 500 Index (US500) has posted a 5.8% return, while the value of bitcoin has risen by 34%. Historically, the level of correlation between bitcoin and the stock market was around 0.6 (R^2=36%), indicating a relatively significant relationship. However, since the beginning of the year, the correlation between the two assets has dropped sharply to 0.31 (R^2=9.6%). This may indicate a decoupling of the cryptocurrency market from the ups and downs of the broad equity market.
Source: Conotoxia MT5, US500, Daily
The average correlation of the 70 largest cryptocurrencies with bitcoin was 0.64 (R^2=41%), which would mean that the majority of this market is still dependent on the situation on just this one cryptocurrency. Nonetheless, an investment in altcoins would have yielded an average return of 41.2% (7.2 percentage points higher) and as many as 89% of them achieved a positive return during this time.
The average annual symmetric risk, as measured by the standard deviation, for the period under review in the cryptocurrency market was 14.44%. For bitcoin, it was slightly lower at 12%. Volatility in this market seems to have returned, as the standard deviation for the stock market was only 2.3%. Which means that the average volatility in the digital currency market is now more than 5 times that of the stock market, which may prove more attractive to active investors.
Further outflows of funds from the cryptocurrency market
The size of the monetary base, as measured by stablecoin capitalisation, seems to have played a key role in consolidating the upward trend. Unfortunately, their volume seems to be steadily declining month by month. According to the StablecoinPrinter website on Twitter, virtually no new major stablecoins were created in February this year. The capitalisation of this entire market fell by 25% y/y. and by 2.4% m/m. It seems that it might be hard to see growth in this market without an influx of fresh capital.
Source: https://btctools.io/stats/market-cap
Despite the increase in SEC scrutiny of the cryptocurrency industry, there have been no immediate outflows of funds from the largest proof-of-stake cryptocurrency, Ethereum. This could be seen in the level of network performance (hashrate), which has remained stable, indicating that there are still a large number of users using the Ethereum network. Nonetheless, it is worth noting the growing regulatory risks that may affect the future movements of cryptocurrency investors and users.
Analysis of emotions
Emotions such as anger and fear are currently prevalent among investors, according to Sentistock, a company that studies emotions in the cryptocurrency market based on social media posts. The company's artificial intelligence, used to forecast bitcoin prices in the near future, predicts an average price of US$22624 for the next 24 hours, 1.1% above current levels.
Source: https://sentistocks.com/predictions/
Grzegorz Dróżdż, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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