An inherent source of correlation in the crypto market

If you follow the crypto market, you may already be familiar with the **strong direct correlation between cryptocurrencies prices**, native or tokenized. When BTC goes down, pretty much everything goes down with it, and when BTC is up, everything is most likely to go up too. This correlation isn’t exclusive to BTC, impacts on the price of many other cryptocurrencies (such as ETH) also reverberate across a wide range of crypto assets, with different degrees of strength among them.

In the following blog post I analyze how **DEX pairs**, as popularized by Uniswap, contribute to the intrinsic correlation between crypto assets, and demonstrate how a BTC trade can indirectly rise the price of ETH within a simulated closed system of DEX pairs:

And to complement the discussion, in your experience what would you list as additional sources of correlation in DeFi?

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7 thoughts on “An inherent source of correlation in the crypto market”

  1. I did a study of this and got shadowbanned. I wanted to see all the correlated sectors/categories of the DeFi market and determine correlation given that most correlation studies out there are regarding token-to-token pairs.

    Here is my github link: []( You would have to scroll to the bottom

  2. Very interesting topic! Crypto markets are very correlated, but I don’t agree with your conclusion:

    >In this qualitative analysis we’ve seen how a system of DEX pairsbuilds-up correlation between crypto assets as a result of exploringarbitrage between these pairs

    The correlation existed a decade before the first DEX was developed and long before we had liquid DEX pairs of non-ETH tokens. This correlation hasn’t gotten stronger after the first DEX was created.

    If you substitute all mentions of “DEX” in your article for “Coinbase trading pair” the analysis will still hold, because there’s nothing in these underlying relalationships that’s a result of DEX pools. The correlated relationships existed in the first spot orderbook markets, they existed in the first futures / perp crypto markets and they now exist in DEXes. If people stop using DEXes the correlation will not disappear.


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