Crypto — Current Trend and Asset Correlation
At the start of 2021, bitcoin made up more than 70% of the crypto market, according to TradingViews. By the end of July 2021, bitcoin’s market share dropped to 48% of the global $1.6 trillion cryptocurrency market, with altcoins such as ether and USDC eating into its dominance. The crypto market now contains more than 11,000 different kinds of altcoins which fall into different categories. There are technology platforms such as Ethereum, EOS, and Ripple. There are gaming platforms such as Ultra, Forte, and Xaya. There are stablecoins (digital currency pegged to real-world currencies or other assets such as Tether, BUSD, and USDC. And there are meme currencies, like Doge and Shiba.
Markets thrive when there are more participants disagreeing on price. Every transaction involves a buyer & a seller, and 100% of the time one of them is wrong; the seller is selling too low or the buyer is buying too high. The more supply you concentrate in the fewer hands, the more stagnated and illiquid a market becomes. If you have a market comprised of many participants with a vested interest in the market, then there will be greater liquidity and greater disagreement on price. Markets thrive on disagreement. But it is this disagreement on the fair market value of an asset that creates a market for it. The more participants you have in the market the more disagreement you have. The fewer participants you have in a market, the more agreement you have and thus the more likely people are to “sell/short” or “long” at the same time.
The capitulation of miners & whales is healthy for the market in the long run as it drives down price, increases supply, and allows for more participants to enter and accumulate BTC. People should be excited by BTC dropping like a lead balloon.
This market is unregulated and so whales do whatever they want. But whales aren’t the biggest problem. The biggest problem is Tether which, in my not so humble opinion, is the biggest load of BS ever crapped out of the mind of madness. It is totally and completely unregulated and unaudited. It is printed by the iFinex corporation whenever they want “money” to inject into the market. It is “funny money” with literally no backing by anyone or anything. And yet people use it to value BTC. At least when the Fed prints money it is backed by the full faith and credit of the US economy. What is tether backed by? I think that is the funniest thing ever about the crypto space. They will decry central banks and “the money printing machine” whilst lauding crypto as some brilliant tool for wealth creation and liberation. Yet all they have done is trade a central bank that has a role in ensuring the stability of the economy and preserving the wealth of the nation as well as jobs etc. for a central monolith that prints tether and uses it to take their money. It would be brilliantly funny if it wasn’t so absurd.
So, what cryptocurrency should I investing to? Please check the biggest market share 2021 cryptocurrency in the video below.
Asset Correlation
When we look at investment from a portfolio management perspective we now must evaluate risk as a measure of the uncertainty of the portfolio returns. We can reduce risk and maintain returns by selecting assets that have a lower correlation with each other. Correlation is a measure of the consistency or tendency for two assets to move/act similarly. Let me explain more.
Correlation is measured on a scale between -1 to +1.
-1 = Returns of the assets are Perfectly NEGATIVELY correlated: This means that Asset 1 and asset 2 move in OPPOSITE Directions 100% of the time. For example; if Asset 1 goes up then Asset 2 ALWAYS goes down by the same amount and vice versa.
+1 = Returns of the assets are Perfectly POSITIVELY correlated: This means that Asset 1 and asset 2 move in the SAME direction 100% of the time. For example; if Asset 1 goes up then Asset 2 always goes up by the same amount as well and vice versa.
0 = UNCORRELATED. The movement of Asset 1 has a ZERO effect on Asset 2 and vice versa.
The correlation coefficient between two assets determines the effect on your portfolio risk when the two assets are combined. For example, if BTC correlates with ETH of 0.9 That means that ETH and BTC are 90% positively correlated. This means that BTC and ETH move in the same direction at least 90% of the time. If BTC price goes up, ETH price will go up 90% of the time (and vice versa).
