Examining The Decoupling Correlation On Altcoin Vs BTC

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By OKEx on Altcoin Academy

As the crypto market matures with and in various shapes, OKEx wants to provide best-in-class service to our Valued Customers to stay competitive in the global market and upcoming waves. For the past years, we have put extra consideration on technologies and products which can suit many different tastes of customers, and still looking around and learning from the industry for endless innovation.

In this analytical research report with the popular topic in both traditional and crypto industry, we performed a correlation analysis of OKEx traded tokens to understand how it is connected. Furthermore, we dive into the micro level to see any shift within a month, weeks, since the market never sleeps.

Highlights

  1. Major tokens show a high degree of correlation with each other.
    However, BTC as the top correlation to all tokens was proved as poor guestimation.
  2. Change of correlation reveals recent market shifts on upcoming crypto technical changes.
    ETC’s Atlantis Hard Fork sourced into trading with decoupling of major tokens.
  3. Microscope approach shows odds on a general idea on correlation.
    – 3-Min. based correlations still keep positive stance, though the strength reduced.
    – TRX’s micro correlation drops notably, compared to the daily one, which implies trading idea.
    – XRP shows an ever-changing relationship with all major tokens.

I. Correlation of OKEx Major Tokens

As shown above, the overall trend of those 9 major tokens is highly correlated to each other.

  • ETH is more correlated to other tokens compared to BTC. Same for LTC, TRX.
  • However, we want to check into how much market’s connectedness has been changed in August. There are degree changes shown below.
  • ETC’s market relationship to all other major markets has been changed, less correlated to, especially BTC and ETH, TRX. As announced in public, it seems like the Atlantis Hard Fork schedule is taking effect and revealing the market sentiment.
  • XRP is moving to less correlated to all others, and also goodbye to ETC
  • TRX is getting more integrated to the market in Aug., except those two above.
  • OKB is getting more correlated to BTC.
  • Note that this is about change. Overall major token markets are still highly correlated.

II. Microscope on Correlations

As known, the correlation structure would break when it comes to micro-level, however, we can see the relationship still exist, not totally broken.

  • The relationship broke down significantly for TRX vs Other major tokens’ trading

Scoping down to the micro-level to see the market moves on a short-term horizon (compared to daily) seems reasonable, with the rationale behind 3-Min. based correlation analysis stems from a robust estimation of completion of price spread and transaction lifecycle on the given universe to see the changes. We would like to zoom into certain patterns where every market information is spread through industry and react, another level of price and volume comes in, wherever crypto and traditional market. We would adjust the time interval for the future report if any interesting pattern detected.

Now, divide and conquer!

  • Correlations shift of ETC with other tokens, which was mentioned earlier, pops up here again from Week1 to Week2 slightly, and from Week2 to Week3 notably. The BTC price plunged down at the start of Week2, and divergence of two token’s price move amplified on Week3.
  • XRP shows very responsive move to BTC price drop. As indicated in the Week1-Week2 comparison, XRP decoupled with all other major tokens in early Aug. And brings back those relationships between Week3 and Week4.

III. What about others?

We would like to understand the whole structure of correlations for OKEx traded USDT pair tokens. Heatmap is shown below and we extract top/bottom 30 Tokens correlated to BTC for additional information. And note to mention, the correlation structure is skewed as min-max indicated below.

Note

  • We calculated correlation based on the price log-returns between specified time interval from OKEx Historical DB:
  • BSV was excluded from this report due to data incompleteness.

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