Binance Research has just released a study analyzing the changes in crypto-asset correlations and their market structures. The report concludes that the cryptocurrency market has already bottomed out and the bear market is supposedly over.
The report analyzes the many compounding factors which separate the cryptocurrency space from more traditional financial markets. From these findings, the report concludes that the worst is behind us.
The Key Findings
Binance Research has outlined a few elements of the cryptocurrency market which make it difficult to evenly compare with traditional markets.
For example, only seven percent of all crypto-assets are held by institutional investors. This is only a tiny fraction when compared to the institutional holdings proportional to the U.S. stock market. Comparatively, the cryptocurrency market only has 1/13th of the proportional amount of institutional investors.
Moreover, the cryptocurrency market has extremely high turnover rates. What this means is that cryptocurrency investors are much more responsive to market changes, prone to being either overconfident or overly pessimistic. This leads to higher transaction volumes and more volatility. For comparison, the turnover rate for the cryptocurrency market is six times greater than the US stock market and three times greater than the Chinese stock market.
Thirdly, the report makes the case that the reason cryptocurrency markets tend to plummet in transaction volume during bear markets is that investors tend to “HODL” as prices drop. This is a marked difference from other markets with institutional investors.
Is The Cryptocurrency Bear Market Over?
Based on the internal correlations found in the Binance Research report, the study concludes that the cryptocurrency market has “already bottomed out.”
There are a few indications of this. For example, the highest volume ever recorded on CME Bitcoin Futures trading occurred in March. Price activity also flatlined for some time during 2019, with March being one of the most stable months for Bitcoin in terms of price volatility.
Although the report mentions limitations to the cryptocurrency industry— like incomplete regulations, asymmetric information, and limited arbitrage channels, it nonetheless affirms that 2018 was a year of much-needed regrouping and building.
Having endured well over a year of bearish sentiments, the study concludes that the worst times are behind us.
Do you believe the bear market is over? Do you agree with Binance Research that comparing traditional markets to cryptocurrency markets is like comparing apples and oranges? Let us know your thoughts below.