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Jan. 15, 2022, 2:59 p.m. EST

Will the crypto market always follow bitcoin’s price lead? It may not in the future, this asset manager explains.

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By Frances Yue

Hello! Welcome back to Distributed Ledger, our weekly crypto newsletter that reaches your inbox every Thursday. I’m Frances Yue, crypto reporter at MarketWatch, and I’ll walk you through the latest and greatest in digital assets this week so far. Find me on Twitter at @FrancesYue_ to send feedback or tell us what you think we should cover.

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Crypto in a snap

Bitcoin /zigman2/quotes/31322028/realtime BTCUSD +1.96% is recently trading at around $42,900, with a 1.5% gain over the past seven days. Ether /zigman2/quotes/108573964/realtime ETHUSD +0.86% logged a 2.2% loss over the past seven days, recently trading at around $3,287. Meme token Dogecoin /zigman2/quotes/226077044/realtime DOGEUSD +0.88% rallied 6.9% over the past seven days, while another dog-themed token, Shiba Inu /zigman2/quotes/231473891/realtime SHIBUSD -0.59% recorded a 4.5% gain.

Crypto Metrics

Biggest Gainers Price % 7-day return
Oasis Network $0.51 32.9%
Harmony $0.36 26%
Near $18.4 19.3%
Dash $143.6 16.2%
Osmosis $9.3 15.5%
Source: CoinGecko as of Jan.13
Biggest Decliners Price % 7-day return
Olympus $226.3 -28.4%
Wonderland $2197.28 -13.8%
Loopring $1.59 -12.5%
Helium $34.36 -11.7%
Celsius Network $3.28 -10.3%
Source: Coin Gecko as of Jan.13

Crypto diversified?

Major cryptocurrencies often trade in tandem, as investor sentiment shifts around news about macroeconomics, regulatory oversight, and broad adoption of digital assets. However, such correlations are likely to weaken as the crypto space becomes increasingly mature with different industry verticals, some industry participants said.   

“Every time there’s a huge correction, correlations go up very momentarily,” Jeff Dorman, chief investment officer at crypto asset management firm Arca told Distributed Ledger in an interview. But such correlations will decrease in a longer timeframe, according to Dorman.

Tokens in various sectors have posted drastically different returns during the past year. Bitcoin gained about 25%, while ether rose 216%. Among other blockchains, Terra’s LUNA rallied more than 10,770%, while Solana /zigman2/quotes/229898318/realtime SOLUSD +2.62% logged a gain of more than 4,000%. XRP /zigman2/quotes/108573966/realtime XRPUSD -0.27% and Cardano /zigman2/quotes/226258619/realtime ADAUSD +0.47% posted a return of 160% and 335%, respectively.  

During the same period, DeFi Pulse index, a capitalization-weighted index that tracks the performance of decentralized finance tokens, gained 42%.

Blockchain gaming token Axie Infinity /zigman2/quotes/229517456/realtime AXSUSD -5.45% and Sandbox traded up 16,419% and 13,024%, respectively.

“There’s no reason why just because two assets are wrapped in a digital asset wrapper that they should behave the same way,” Dorman said. “In the same way, why would you expect the healthcare stock to move in the same way that a gold ETF moves that an early stage technology ETF moves? They’re all ETFs doesn’t mean they’re similar.”

“It’s the same thing with digital assets. Just because they’re wrapped in a digital asset wrapper doesn’t make them similar assets. They behave differently. There’s different inputs that drive outputs,” according to Dorman.

Bitcoin correlation with other crypto

This chart shows bitcoin’s correlation during the past three years with smart contract blockchain Ether, proof-of-stake blockchain Cardano, Metaverse-related token Decentraland /zigman2/quotes/226547733/realtime MANAUSD +2.83% , meme token Dogecoin, decentralized exchange token SushiSwap /zigman2/quotes/229898414/realtime SUSHIUSD +0.54% and centralized crypto exchange token Binance coin, respectively.

Though an ideal version would be presenting bitcoin’s correlations with different market value-weighted indexes of various verticals, the chart provides some general idea of how bitcoin has been trading with other cryptocurrencies.

Correlation ranges in magnitude from -1.00 to 1.00. A positive correlation means assets have been moving in the same direction, while a negative correlation means they moved in the opposite direction. The larger the absolute value of the coefficient, the stronger the relationship. 

Bitcoin has posted positive correlations with most of the selected crypto during the timeframe. Its correlation coefficient with ether is notably higher than that with other tokens. Bitcoin’s correlations with most crypto selected saw an uptick during the most recent round of market sell-offs.

Citadel’s potential crypto push?

Citadel Securities, the electronic market maker founded by Ken Griffin, on Tuesday announced a $1.15 billion investment from venture-capital giant Sequoia and cryptocurrency investment outfit Paradigm. 

In an opinion piece, MarketWatch’s Thornton McEnery wrote about how the deal could give Citadel the liquidity to go bigger and go abroad . “It’s been an open secret for years that Griffin wants Citadel to be the next Goldman Sachs, a financial-services superpower with a global reach that can make markets, dominate equity trading and fund deals of spectacular size,” McEnery wrote.

The deal may also hint at Citadel’s potential push into crypto, as Paradigm is a venture capital firm that focuses on investing in crypto companies and protocols. 

In a statement , Matt Huang, Co-Founder and Managing Partner of Paradigm wrote that “we look forward to partnering with the Citadel Securities team as they extend their technology and expertise to even more markets and asset classes, including crypto.”

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