• Large-cap cryptocurrencies displayed record-high correlations in the first quarter of 2020. Bitcoin and Ethereum exhibited a high correlation (0.93) and a median correlation coefficient of ~ 0.81 with the other largest 15 cryptoassets.

  • Despite the price volatility, idiosyncratic factors still play a significant part for cryptoassets, with some of them displaying positive quarterly gains (LINK, XTZ, BSV) and low correlations with others, which can be explained by different timing for their respective price gains.

  • Due to the COVID-19 pandemic and the global economic turmoil, all asset prices were down in the first quarter of 2020, with the exception of long-maturity Treasury bonds, benefiting from capital appreciation (explained by the decrease in long-term yields and expansionary monetary policies).

  • In the first quarter of 2020, Bitcoin price was down by -10%, while the S&P500 displayed a -19% return. Their correlation was relatively high (0.57), which is explained by a similar pattern in daily business day returns. Meanwhile, gold displayed a null relationship with BTC over these 3 months.

1. Correlations and performances in Q1 2020

Chart 1 - Performance of CMC 200 Index in the first quarter of 2020

performance CMC 200 Index

Sources: Yahoo Finance, CoinMarketCap.

Using the CMC 200 index as the industry benchmark, the crypto-industry displayed a negative performance. January demonstrated positive gains, followed by moderate negative returns in February before the market crash of mid-March (with March 12th being even referred to as “Black Thursday”).

Chart 2 - Quarterly returns in Q1 2020 for large-cap cryptocurrencies (in USD)

crypto returns in Q1 2020

Sources: Binance Research, CoinMarketCap.

Specifically, Bitcoin (BTC) lost -37.5% of its value on March 12th 2020, one of its worst daily returns in history. From a bottom below $4,000, Bitcoin’s price rebounded in the second half to close on March 31st above $6400. Over the quarter, the price of Bitcoin went down by -10.49%, making it one of the worst performers amongst our sample of cryptocurrencies.

In comparison, Ethereum (ETH) was slightly positive with a quarterly return of 3.07%.

Worth noting, Bitcoin SV (BSV), LEO, ChainLink (LINK), and Tezos (XTZ) displayed significant positive gains thanks to idiosyncratic factors (i.e., project-specific elements such as important news, mainnet launch, forks, etc.).

Chart 3 - Correlations between cryptocurrency daily returns in the first quarter of 2020

correlations cryptos Q1 2020

Sources: Binance Research, CoinMarketCap.

As a result, these idiosyncratic factors are best illustrated by the above correlation table. Indeed, positive return movements were not synchronized, which explains why they did not display a significant relationship with each other.

Hence, these four assets (BSV, LEO, XTZ, and LINK) displayed the lowest average correlations with others. In comparison, all "negative movers" generally showed high correlations (e.g., BTC, LTC, BCH).

Once again, assets related at a fundamental level displayed significant correlations. For instance, the highest correlation of BSV was with BCH (0.73): BCH and BSV shared the same blockchain until November 2018.

2. Correlations with traditional assets: how did the market turmoil impact cryptocurrencies?

Chart 4 - Quarterly performance of financial assets in Q1 2020 (USD)

quarterly performance financial assets Q1 2020

Sources: Binance Research, Coin Metrics, Yahoo Finance.
TLT: U.S. Treasury bond ETF with maturities superior to 20 years.

Long-term treasuries (TLT) were the top performer across financial assets, with a +23% quarterly return, owing to capital appreciation from the decrease in long-term yields.

The price of gold was also up +8%, with significant gains in the second half of March.

Downwards pressure on the price of crude oil led to disarray in the Organization of the Petroleum Exporting Countries (OPEC), as member states failed to agree on further oil output cuts. The demand shock was thus aggravated by supply changes, resulting in the crude oil price losing two third of its previous value.

Bitcoin performed better than the S&P500 index, with a calendar return of -10% (vs. -19%). Similarly, large-cap equities performed better than mid and small caps (Russell 2000: -31%).

Chart 5 - Correlations between the daily business returns of BTC, CMC200, and traditional financial assets in the first quarter of 2020

correlations cryptos and financial assets in Q1 2020

Sources: Binance Research, Coin Metrics, Yahoo Finance.

Regarding correlations, BTC displayed a moderate positive correlation with US equity indexes: coefficients of 0.57 with S&P500 and 0.64 with Russell 2000.

The VIX spiked, due to the change in the volatility of the equity market in the US. However, as equity prices were moving in a downward direction, the VIX displayed a negative correlation with S&P500, Russell 2000, and by association with cryptocurrencies (BTC, CMC200 index).

Despite the price oil moving in the same direction as the rest of the market, it is explained by idiosyncratic factors (discussed before), which led to its low correlation with other asset classes.

Finally, unlike our initial finding, gold did not display any sort of relationship with Bitcoin on a longer timeframe. This illustrates both the importance of the sample size and the impact of outliers on results from correlation analyses.

Worth noting, the price of silver went also down in Q1 2020, as the increase in its supply was not matched by sufficient demand, leading to its decoupling with gold despite a significant positive relationship (0.75). As a result, silver did not exhibit any correlation with BTC, nor with the CMC 200 index.

3. Conclusion

The market turmoil, explained partially by the ongoing crisis with the COVID-191, led to negative price changes across most of the traditional asset classes like oil, commodities, equities, and corporate bonds2.

Following the global turmoil, the price of Bitcoin and other cryptos also dropped heavily in mid-March, in line with other assets like equities.

Despite Bitcoin displaying a significant positive correlation with US equities in the first quarter of 2020, this high correlation coefficient remains very unlikely to persist in the medium to long term.

  1. Binance Charity has a charity campaign against COVID-19.
    Please find more about the campaign “Crypto Against COVID” and Covid 19 donations on the Binance Charity website. https://www.binance.charity/crypto-against-covid

  2. Corporate bonds, not Treasuries.