ICO Tokens Still Highly Correlated to Bitcoin


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The aftermath of the 2018 bear bloodbath saw an increasing correlation between Initial Coin Offering (ICO) tokens and Bitcoin (BTC), despite the clear differences between them. According to an article published March 26, 2019, by VoxEU, some commentators at the Center for Economic Policy Research (CEPR) say this absence of an uncoupled price regime could point to the still-developing nature of the ICO market.

High Price Correlation Indicative of Cryptocurrency Infancy

As per the report, the policy portal of the CEPR, Antonio Fatás, and Beatrice Weder di Mauro have put forward the argument that ICO tokens being highly correlated with the BTC price shows that ICOs are still in their infancy.

The analysis provided by the pair, the former an Economics Professor and the latter, the CEPR President, details how both BTC and ICO tokens suffered during the 2018 bear market. During the onslaught of 2018, cryptocurrency prices fell by more than 80 percent across the board.

The consensus among experts is that cryptocurrencies share no correlation with the mainstream market. However, within the cryptocurrency arena itself, the reality is a lot different.

Virtual currency prices have been known to rise and fall in unison. A broad-based analysis of the market shows virtually no discernable coupling among tokens except for the isolated cases of mini-rallies which most times indicate an artificial price pump.

With ICO tokens unable to exhibit any immunity to the 2018 bear market, the researchers say the ICO market is not yet mature. Also, Fatás and di Mauro believe that these tokens while claiming to support various business elements all fall into the bitcoin hype and are such, likely to move in the same price direction.

Correlation is Relative and ICO Market is Declining

As previously reported by BTCManager, research by Binance showed that the degree of correlation among major cryptocurrencies (top 30) was relative depending on the base currency being considered. According to the report, correlation rates tend to be higher when returns were denominated in US dollars than when denominated in BTC.

While the CEPR researchers point to the still maturing state of the ICO market, fundraising figures show that the ICO scene is in decline. Recent data from the ICO monitoring platform, ICObench, shows that cryptocurrency fundraising is down by about 90 percent since the start of the year.

It remains to be seen whether the fundraising fatigue will spillover to the altcoin market, leading to anticipated “cryptocurrency purge.” Commentators like Matt Hougan of Bitwise and Barry Silbert of Digital Currency Group believe that many tokens will eventually go to zero.

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