PROJECTS

CRYPTOCURRENCY CORRELATION

REASON FOR THIS PROJECT

In this project I will explore how bitcoin price changes are correlated to the price changes of other crypto currencies. Do the prices go up and down at the same time or does Bitcoin tend to go up first and then the rest of the market follows.

If Bitcoin goes up before other cryptocurrencies that can be a great indicator for traders to day trade between the currencies and make profit.

I will explore if this is true and if it is something that anyone can take advantage of.

PROJECT STEPS

2017/2018 BULL MARKET

First I will check if the price changes happen on the same day using a database found on kaggle.com. To do this I will use python to do some quick analysis.

First of all I looked at the 2017/2018 bull market where bitcoin peaked on december 17th. I imported the csv files into my Jupiter notebook and created variables for each coin we will look at.

I later created new variables that only show data from 2017-08-29 – 2018-02-28 for each coin and created line charts with each coin/bitcoin. I made the chart use twin axis to make the lines overlap to see what I am searching for more clearly.

Looking at these charts it is pretty clear that out of the selected coins bitcoin was the first one to hit peak price and the other coins followed after in pretty much random intervals.

So this is what happened in 2017, lets take a look if this also happened in the 2021 bullmarket.

2021 BULL MARKET

So I created new variables to store new dates that I will use for analyzing the data from 2021 bull market. I also created new variables for the cuts of the data from the dataframe for each cryptocurrency.

Then I just used the same code from before for creating the graphs, I only updated the variables and created line charts for the currencies for the 2021 bullmarket.

After creating the last line chart I created 2 images where we can see the line charts of the currencies together from both bullmarkets and find out if the same correlation still exists 4 years later.

There still seems to be a clear correlation between the currencies and bitcoin, when bitcoin goes up, so do the currencies. It is a bit harder to see if it is happening on the same day or not since the lines aren’t close enough, for that we will have to zoom in a bit by making the timespan of the graph a bit shorter.

But 1 thing we can see very clearly is that bitcoin still peaked before all the other coins except against xrp, which seems to have peaked on the same day.

2021 BULL MARKET ZOOMED IN

I decided to zoom in on the time right before the bitcoin peak at that time which was on 19.14.2021. I took the starting date of 16.12.2020 and the end date 19.4.2021 and created new variables.

To see the price movements and the dates on when they happened more clearly I added gridlines to the x-axis of the graphs. Doing this I can more clearly see if certain price movements happened on the same day or not. I made the gridlines 9 days apart, otherwise the x axis data was very hard to read as it was clustered together and overlapped.

So before we saw that altcoins in most cases reach their peak price of the bull market after bitcoin, but looking at the price movements before bitcoin hit its peak, the answer isn’t that clear.

In most cases the prices seem to move very close to each other only with different % movements. There are times when the first one to reach the peak of the bullish move is bitcoin, for example:

Bitcoin/litecoin,ethereum,monero: between 01-04 and 01/13

Bitcoin/monero: between 01-31 and 02-18

But in other cases the altcoins were making new highs before bitcoin. For example Stellar seemed to be ahead in price movements of bitcoin most of this time and then peaking on the same day. Ethereum was making bullish moves while bitcoins price was correcting (going down) betweeen 01-13 and 02-09.

So it is hard to say that there is a simple trading strategy to make from this. We will need to look at more data before making any conclusions.

I will collect some more recent hourly price data and zoom in on the price movements even more.