Correlation analysis of world cryptovality volatility

Abstract

In the world there no country, market or economy which is separated, and interconnection is becoming a fundamental feature of almost all social and economic systems. In the case of digital assets, such as cryptocurrencies, the impact of the relationship on their performance and price trajectory increases. The investigation of these phenomena is important for understanding the processes that govern cryptocurrencies. The objective of this paper is to assess the tightness of the relationship between the world's leading cryptocurrencies. In order to achieve this goal, the concepts of «cryptocurrency» and «blockchain», their history and features are considered. The principles of the first cryptocurrency – Bitcoin – are studied and the dynamics of changes in its price from 2015 to 2021 are analyzed. The price of Ethereum, XRP and major financial assets is compared. The best 20 cryptocurrencies at a certain time are identified with their price, capitalization and value changes over the last day and week. Based on the data from the Hackernoon website, research by Larry Chermak and the cryptocurrency publication The Block, it is determined that the strongest cryptocurrencies are interdependent or follow the most important cryptocurrency – bitcoin. Pearson's coefficient is considered. On its basis the correlation strength between eleven leading cryptocurrencies is determined, the part of the data are presented as a confidence interval. It is found that Ethereum and Litecoin have the strongest association with Bitcoin. Coin, Tron, Cardano, Bitcoin Cash, however, have low (negative) correlation between Tether or USDC. The main factors influencing the price of cryptocurrency are identified. It is also determined that alternative cryptocurrencies have lower correlation with bitcoin during periods of price growth, although the differences are not large, and during price decline the strength of bitcoin's correlation with other cryptocurrencies increases significantly, in most cases it reaches even very strong connection. The influence of social networks such as Google+ and Twitter on the price of cryptocurrency is determined as well. The proposed analysis makes it possible to understand the dynamics of cryptocurrency markets and the various processes that affect their efficiency.