People have long observed that the cryptocurrency market moves with Bitcoin. But the question is, to what extent and how should investors navigate the markets knowing this.

In this analysis, I'll be analyzing data from Bitcoin, Ethereum, and the Top 200 cryptocurrencies via the CMC200 Index by Solacti. I'll also be using the S&P 500, a stock market index, for a non-market comparison.

Scatter Matrix

https://preview.redd.it/99c874d0rz271.png?1490&format=png&auto=webp&s=f5a70ac15232e16ca3338734362cc397f58094b7

How to read this:

• The more linear, the greater the correlation. The results were as expected: most crypto pairs form a linear pattern. And all comparisons between cryptos and stocks are non-linear. In other words, they are not correlated.

Correlation Matrix

https://preview.redd.it/wk9fi2d0rz271.png?502&format=png&auto=webp&s=47f49ca266ba95e7321105eba1a1b1786c04e1ce

How to read this

• Higher numbers and lighter shade mean higher correlation. A negative value would be closer to an inverse relationship (i.e. X goes down and Y goes up).

Return on Investment

https://preview.redd.it/wnxkc8qeqz271.png?1966&format=png&auto=webp&s=eb64c61b679f408e73465e5bbe1fd607934b5a55

How to read this:

• Bitcoin goes up, the market goes up, and vice versa. The only difference is to what extent a cryptocurrency will out- or underperform the market.

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Key Takeaways

This isn't new but the market is highly correlated. At least relative to the cryptocurrencies used in the analysis.

It seems like the Top 200 typically balances out relative to the returns of Bitcoin. So, really, you're looking for outliers (i.e. Ethereum) instead of just throwing whatever sum of money into whichever coin or token. Thus, this analysis has some implications for diversification within the cryptosphere. I think the relevant Warren Buffer saying here is "Diversification may preserve wealth, but concentration builds wealth."