Binance study shows that Ripple’s XRP token is the most ‘’ diversifying’’ token for investors after a research was conducted. The coming altcoin news shows that there is a correlation between cryptocurrency ‘’clusters’’ but that being a diversifying coin is not always the best strategy when it comes to lowering down the risk-taking.
The Research Branch of the crypto exchange published the Binance study last week showing the correlation between the different types of cryptocurrencies. It eventually makes a point that the largest cryptocurrencies such as Ethereum and Bitcoin show the highest positive correlation or commonly known as ‘’clusters.’’ This correlation means that the prices for both of the cryptocurrencies tend to follow the market trends together. As the prices move together, investors are exposed to similar risks and gains.
The binance study also shows that Ripple shows less correlation with Ethereum and Bitcoin’s price trends and was named to be the ‘’best diversifier among digital assets with a market cap above $3 billion.’’ Previous reports, however, suggest that when it comes to spreading the risk across altcoins, Ripple’s XRP might not be the safest option given the market volatility.
Also, the Binance study outlines multiple relationships between cryptocurrencies forming a cluster including Bitcoin Cash, Ethereum Classic, Litecoin and Bitcoin Gold. Other coins demonstrate ups and downs mainly for being or not being listed on a specific exchange. For example, Dogecoin is not listed on Binance and still manages to create an individual cluster with Tezos.
The researchers working on the Binance study focused on the top 30 cryptocurrencies by market cap and their USD prices. Stablecoins were not included in the study along with other digital assets backed by other assets. As the best cryptocurrency news sites write, ‘’privacy coins’’ also tend to form clusters and here we can focus mainly on Dash and Monero since they already are a single cluster.
The binance study, however, came with a disclaimer:
‘’On the other hand, performing K-Means clustering on risk-return profiles of each cryptoasset did not return any meaningful results. One potential explanation is that return & volatility profiles are not related to underlying price co-movements over the study period.’’
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Stefan has been writing articles for DCForecasts since 2016 in-house full time. As one of our main cryptocurrency writers, he focuses on covering the latest cryptocurrency news, technical charts, price analyses of coins and press releases. When he is not exploring and covering the latest topics in crypto, you can find Stefan playing basketball, tennis or cycling.
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