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Dynamics of Bitcoin & Altcoins

25 November  2020 | ZebPay Trade Desk

Bitcoins are limited in supply, which makes them scarce and valuable. Only 21 million coins will be issued. At ~350 billion U.S. dollars, Bitcoin has the largest market capitalization.

Bitcoin (BTC) Snapshot (at the time of writing)

Market Capitalization$352,497,221,318 USD
Current Price$18,999.09 USD
24 HR Volume $51,275,479,184 USD
All Time High/ Low $20,089.00 USD / $65.53 USD
ROI ( from ICO Price) > 9000%
Total Supply 21,000,000 BTC

The Bitcoin Network is the first successful implementation of blockchain technology. The blockchain network is not centrally controlled by a bank, corporation, or government, which means that the blockchain technology on which Bitcoin operates has several advantages. More user autonomy, better accessibility, elimination of banking fees, peer to peer focus, very low transaction fees, low cost of trading, low deposit amounts, no global boundaries, and an exceptionally secure environment to transact are a few of the unique advantages.

Bitcoin Dynamics: 

At the time of writing, BTC has seen it’s value rocket to $19,000 after dropping to $4,840 in March this year. BTC made an all -time high of $19,783 in December 2017, followed by a drop to $3,122.  Looking back, the year price of BTC has doubled, growth of $10,000 almost in the past year.

Number of factors have contributed to the growth of BTC so far, interestingly some of these factors make the ongoing trend in the price sustainable. Massive wave of fiat debasing in response to Covid crisis is supportive of assets like BTC, Central across the globe have embarked on Quantitative easing case in point being the balance sheet of the US Fed is currently bloated beyond 7 trillion dollars from 4 trillion dollars at the start of the year.

BTC has gone mainstream pretty much this with Paypal allowing crypto currencies to firms and individuals allocating their balance sheet/ wealth to BTC and using it as a store of value.

More and more sophisticated investors and funds are looking at BTC addition to their portfolios, case in point Grayscale Bitcoin Trust’s AUM has risen from $5.9 billion at the start of September to more than $10 billion. Lastly, legendary trader and macro fund manager Paul Tudor Jones said he is buying BTC as an hedge to inflation, currently BTC reminds him of the gold in the 1970s. 

All these means the ongoing trend in BTC may very well continue.

Altcoins Snapshots:

Ethereum (ETH) Snapshot (at the time of writing)

Market Capitalization$67,537,122,980 USD
Current Price$594.70 USD
24 HR Volume $22,446,587,792 USD

All Time High/ Low 

$1,432.88 USD / $0.420897 USD
ROI ( from ICO Price) > 9000%
Total Supply 113,565,840 ETH

Like Bitcoin, Ethereum too is a distributed public blockchain network. While there are significant technical differences between the two, it is important to note that they both have a very different purpose and capability. Ethereum focuses on being able to successfully implement programming codes on any decentralized applications, using smart contract platforms. The Ethereum network went live on the 30 July 2015, with 73 million Ether pre-mined. Today it is the 2nd largest token by market capitalization.

LiteCoin (LTC) Snapshot (at the time of writing)

Market Capitalization$6,036,003,181 USD
Current Price$91.54 USD
24 HR Volume $8,527,995,221 USD

All Time High/ Low 

$375.29 USD / $1.11 USD
ROI ( from ICO Price) 2,028.92%
Total Supply 65,938,389 LTC

Litecoin is a peer-to-peer cryptocurrency created by Charlie Lee, a former Google employee, in 2011. The cryptocurrency was created based on the Bitcoin protocol, but it differs in terms of the hashing algorithm used, hard cap, block transaction times and a few other factors. Litecoin was released via an open-source client on GitHub on Oct. 7, 2011, and the Litecoin Network went live five days later on Oct. 13, 2011.

Bitcoin Cash (BCH) Snapshot (at the time of writing)

Market Capitalization$6,303,714,080 USD
Current Price$339.25 USD
24 HR Volume $8,139,672,409 USD

All Time High/ Low 

$4,355.62 USD / $75.03 USD
ROI ( from ICO Price) -38.96%
Total Supply 18,581,538 BCH

Bitcoin Cash is a peer-to-peer electronic cash system that aims to become sound global money with fast payments, micro fees, privacy, and high transaction capacity (big blocks). In the same way that physical money, such as a dollar bill, is handed directly to the person being paid, Bitcoin Cash payments are sent directly from one person to another.

Basic Attention Token (BAT) Snapshot (at the time of writing)

Market Capitalization$371,818,561 USD
Current Price$0.251003 USD
24 HR Volume $321,924,997 USD

All Time High/ Low 

$0.980702 USD / $0.066209 USD
ROI ( from ICO Price) 49.20%
Total Supply 1,500,000,000 BAT

Basic Attention Token, or BAT, is the token that powers a new blockchain-based digital advertising platform designed to fairly reward users for their attention, while providing advertisers with a better return on their ad spend. This experience is delivered through the Brave Browser, where users can watch privacy-preserving adverts and receive BAT rewards for doing so. On the other hand, advertisers can deliver targeted ads to maximize engagement and cut down losses due to ad fraud and abuse.

Altcoins Dynamics:

For the Alt coin dynamics for the purpose of this report we focus on how increasing interest in BTC  and boom and bust in the BTC has historically affected these coins and how recent rally of BTC may turn out of these coins.

Although available history is not very long we looked at qualitatively how the alt coins behaved, we observed that BTC leads in the rallies while alt coins follow. For example, consider the BTC rally of late 2017. BTC rallied till December 17 in 2017, although alt coin didn’t rally as aggressively at the beginning they did catch the bid with delay, with ETH and BAT reaching their highs in January 2018 , LTC and BCH later in the month of december 2017.

Keeping this in mind we then next look at the correlation between the assets, we calculated the correlation between price and 5 day returns of the alt coin with the same of BTC. We did this on a rolling 30 days basis and all time. To confirm the lag between alt coins and BTC in bullish we see the correlation when BTC rallies and on average. Below chart depicts the rolling correlation of 5 day returns between BTC and alt coins.

As we in the chart, before the BTC peaks at the start of the rallies, correlation dips down, confirming the lag in rally in the alt coins that we see historically.

One of the reasons we think for the same is once Bitcoin rallies, more participants start paying attention to crypto complex leading to broader interest in alt coins (analogous to value play in traditional assets)  and rally in cheapened alt coins.

Conclusion:

We summarize the price and 5 year return beta and correlation the coins show with BTC in the below table. 

ETHBATLTCBCH
30 day rolling Average Price Correlation50.62%47.73%71.57%74.73%
30 day rolling Average Price beta for $100 move in BTC2.90.0030.998.7
30 day rolling Average return Correlation50.08%48.60%72.66%70.43%
30 day rolling Average return beta0.6100.8190.9961.154
All time price correlation73.59%46.21%75.75%41.93%
All time price beta for $100 move in BTC3.90.0010.957.0
All time return correlation38.92%49.66%57.66%41.20%
All time return beta0.7250.7900.8920.858

Note: Price beta tells how much alt coins move in price terms for $100 move in BTC and 5 return beta tells how much alt coins give returns over 5 days for 1% return on BTC over 5 days. 

Here, we showed both qualitatively and quantitatively the lag between rallies and historical correlation of alt coins with BTC, with this analysis we presented a model to view the move in alt coins with respect to move in the BTC. The lag alt coins display at the start of a bullish trend and breakdown in historical correlation and can make for a good tool in deciding for tactical asset allocation at different points in BTC rallies.

We conclude by pointing (in the chart in alt coins dynamics section) the rolling correlations are still below their historical levels and alt coins look to rally with their correction towards trend.

The analysis done by the ZebPay Trade team aims to provide traders and investors alike, a sound understanding of rotation strategy between BTC and alt coins, and how it might help as an investment strategy. Relative value play between BTC and alt coins is an effective method of portfolio allocation in crypto space, and gaining from crypto assets. 

Happy Trading with Zebpay!

References:

https://www.investopedia.com/

https://coinmarketcap.com/

https://www.coinbase.com/

*Sources of BTC and ETH price: https://coinmarketcap.com/

Disclaimer :

This report is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. The Company has prepared this report based on information available to it, including information derived from public sources that have not been independently verified. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed herein. This report is preliminary and subject to change; the Company undertakes no obligation to update or revise the reports to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. Trading & Investments in cryptocurrencies viz. Bitcoin, Bitcoin Cash, Ethereum etc.are very speculative and are subject to market risks. The analysis by Author is for informational purposes only and should not be treated as investment advice.

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