Investors have a specific set of traits they look for in their target investments. It can be a certain industry, size, or business model, but they usually have a set list of characteristics they’re looking for. One great example of these characteristics is correlation.
Correlation refers to the amount that two values move together. Negative correlation says they move opposite, positive means they move together, and a correlation close to zero says they are unrelated.
One of the top appeals of as an investment is the low correlation it has with nearly every other investment class. There is nothing that moves quite like it, so becomes a great hedge. It doesn’t hurt that also has a high level of volatility, which makes profits (or losses) more likely.
But what many don’t think about is how to benefit from low correlation within the space. A large proportion of have a high correlation with . They move almost in sync. There’s a reason why the crash is treated as synonymous with the crypto or ICO crash.
Once you’re into , you have sufficiently diversified out of all the other asset classes (equities, bonds, and ). So why take it any further? If they all move with generally the same patterns, wouldn’t it be easier to stick to the coin that is the most liquid?
Binance Coin’s Low Link to bitcoin
There are actually a few coins that have a low correlation with . First, we have BNB, or Coin. BNB can be exchanged for transaction fees on , which gives it an inherently unique intrinsic value. Until recently, it moved similarly to , but in the last 3 months, it has gone up nearly 150%!
It is now even rated the 7th highest in terms of market capitalization. In a way, this is just a very strong testament to how well is doing, and acts like an equity in the company.
hasn’t even gone up 5% this year, and Coin is dwarfing it with its massive growth. So this is one example of a coin that breaks away from the pack which is generally tied too tightly to .
So one investment strategy could be to look for coins that have a fundamental value which can be seen as definitively separate from . Ideally, these are the coins that will break away and show low correlation with .
Stablecoins as a Safe Play
The other example of a coin that doesn’t move with is Tether. Yes, it is a stablecoin, but it can also be a great way to hedge against swings in other . A safe haven of sorts. And when you think things are going south, the best place to be is Tether. People forget that this is still a and if you think about the idea of selling US dollars to buy Tether, that could be a winning (and profitable) trade.
So there are two investment strategies which are easy to implement and have the potential for either breakout success, or at least helping you avoid ruin. Analyzing the way coins and the whole ecosystem is links is the best way to continually isolate trends and act on them.
Thank you!!!
Published at Sat, 09 Mar 2019 16:05:13 +0000
