1/ Finally got around to reading this excellent thread on cross-coin correlations, and I havn't been able to stop thinking about this question posed by @cryptorae:
Through what path do correlations unwind and volatility rises?
Through what path do correlations unwind and volatility rises?
2/ His thread breaks down the current market environment very well, so I suggest reading it first to understand the 'now' -> cross-coin correlation high with low volatility.
3/ I've illustrated what that looks like in alts vs $btc since March with $ETH representative of most of the alt space.
Alts have been moving virtually in lockstep with $BTC - rising when it gains, and falling when it wains:
Alts have been moving virtually in lockstep with $BTC - rising when it gains, and falling when it wains:
4/ The current environment (high correlation, lower vol) reminds me of a relationship found in traditional markets -> correlation between weekly stock returns and int rate movements.
When yields are low - rising yields and stock returns have positive relationship.
When yields are low - rising yields and stock returns have positive relationship.
5/ The same way the rising yields and rising stock returns correlation is thrown out when yields get to higher/extreme levels - the correlation for $btc and alts is out of whack when $BTC volatility gets extreme.
6/ The path I expect considering the past and a best guess of the future...is that alts continue to act like 'leveraged' $btc positions following its movements with high corr until market forces cause $BTC volatility to spike.
7/ With $BTC higher timeframe along support and some alts at cycle lows with current enviornment the way it is -> I want to be in a concentrated few positions ready to capture the stronger bounce from w/o concern that $btc makes them flop in short term if it continues to rise.
