This report offers a focused overview of the secondary cryptocurrency market. While it does not provide any investment advice, we aim to deliver valuable and targeted insights to support your investment journey.
Market Overview
Our market analysis concentrates on the top 100 cryptocurrencies listed on CoinMarketCap. The sector classifications are primarily based on MyToken, with slight adjustments applied in practice. As our understanding of the crypto ecosystem deepens, we continuously update these sectors and their constituents.
New entrants to the top 100 cryptocurrency rankings this week include:
- XMX
- JCT
- CCCX
- BZNT
Tokens that dropped out of the top 100 compared to last week are:
- WAX
- SAN
- NAS
- GRIN
Performance of Top 100 Cryptocurrencies by Sector
Top 100 Cryptocurrency Returns — Classified by Sector, June 11, 2019, to July 11, 2019
Returns and Volatility
The following charts compare the daily average returns and daily average volatility of 15 different crypto sectors against the overall cryptocurrency market and the stock market. Some sectors include only one or two tokens, while others contain more than a dozen, which can lead to extreme data points.
Daily Average Returns and Daily Average Volatility from June 11, 2019, to July 11, 2019
For easier data visualization, we have abbreviated several sector names:
- M = Market
- DC = Digital Cash
- CP/MP = Computing Power/Mining Pools
- A/M = Advertising/Media
- G/E = Gaming/Entertainment
- C = Classic Mainstream
- D/GT = Distributed Autonomous
- E/T = Exchange Tokens
- OC/I = Off-Chain/Cross-Chain
Correlation of Daily Returns Between Sectors
Correlation values range from -1 to 1. A correlation closer to 1 or -1 indicates a strong positive or negative relationship between two sectors, respectively. A correlation near 0 suggests no linear relationship.
Correlation of Daily Returns Between Sectors from April 11, 2019, to July 11, 2019
Focus Topic: Buying the Dip
Since April 2019, the cryptocurrency market has shown a bullish trend. Between April 1 and July 1, Bitcoin surged from $4,158 to $10,817, with an average monthly gain of 38%.
Although Bitcoin's price continued to rise, it experienced several pullbacks. While most cryptocurrency investors remain bullish on Bitcoin, a key question is how much to wait for the price to drop before entering the market. This strategy is commonly known as "buying the dip."
In the following section, we examine the duration of these pullbacks. Here, a pullback or decline is defined as a price drop of more than 5%. The goal is to identify the expected time between peaks and troughs during a bull market. As shown in the chart below, we calculate the number of days between the blue and red lines using Bitcoin's daily closing price.
During the period from February to July 2019, there were only five instances where Bitcoin's price pulled back by more than 5%. The average time between each peak and trough was 6.4 days.
If we redefine a pullback as a price decline of more than 3%, there were eight instances, with an average duration of 4.9 days.
Further reducing the threshold to a 1% drop, there were twelve instances, with an average length of 3.9 days. However, when plotting the frequency of each duration, we observe that prices bottomed out within two days in six cases. Meanwhile, only two instances saw prices falling for more than five consecutive days.
In contrast, Ethereum exhibited much higher volatility and longer average pullback durations.
Using Bitcoin price data from the previous cryptocurrency bull market in 2017, we observed that most of Bitcoin's pullbacks ended within five days.
The two charts below summarize all instances where Bitcoin fell by more than 1% during the 2017 and 2019 bull markets. The right column shows the number of days it took for BTC's price to recover to its original level.
These results indicate that estimating the time between peaks and troughs is challenging, as it ranges from 1 to 35 days. However, we observed that if the price drops by more than 1% and does not bottom within five days, it is likely to continue falling, eventually resulting in a total loss exceeding 10%.
This report outlines Bitcoin's pullbacks during the two recent bull markets. However, past performance does not guarantee future results. Investors should conduct their own research before making investment decisions.
We hope you enjoyed this week's market report. Join us again next week! Feel free to share your thoughts or opinions on secondary cryptocurrency trading in the comments below.
Data Sources
Data sources for this report include:
- CoinMarketCap: Used for analyzing the top-performing tokens in each sector, volatility, average daily returns, total returns, and correlations.
- MyToken: Used for sector classification.
Frequently Asked Questions
What is a cryptocurrency market pullback?
A pullback refers to a temporary decline in the price of a cryptocurrency within an overall upward trend. It is often seen as a buying opportunity by investors looking to enter the market at a lower price point.
How is volatility measured in cryptocurrency markets?
Volatility is typically measured by calculating the standard deviation of daily returns over a specific period. High volatility indicates large price swings, while low volatility suggests more stable price movements.
Why do sector correlations matter in crypto trading?
Understanding correlations between different cryptocurrency sectors helps traders diversify their portfolios effectively. Low or negative correlations between sectors can reduce overall portfolio risk.
What defines a 'top 100' cryptocurrency?
The top 100 cryptocurrencies are determined by their market capitalization, which is calculated by multiplying the current price by the total circulating supply. Platforms like CoinMarketCap provide real-time rankings.
How can investors identify a good entry point during a dip?
Investors often use technical analysis indicators, such as support levels, moving averages, and relative strength index (RSI), to identify potential entry points during market dips. Fundamental analysis of the project's long-term prospects is also crucial.
Are cryptocurrency bull cycles predictable?
While historical patterns can provide insights, cryptocurrency markets are influenced by numerous unpredictable factors including regulatory developments, technological advancements, and macroeconomic conditions. No model can perfectly predict bull cycles.
For those looking to deepen their understanding of market analysis techniques, you can explore more strategies for navigating cryptocurrency volatility.
Stay Updated with KRONOS
KRONOS is a leading professional quantitative trading research institution leveraging decades of global traditional financial market experience to bring innovative asset management strategies to the crypto world.
To learn more about advanced trading methodologies, view real-time tools that can enhance your market analysis capabilities.