Analysis reveals that the correlation coefficient of the two largest cryptocurrencies by market capitalization to the USDT (Tether) has turned negative again.
Tether (USDT) is a cryptocurrency pegged to the U.S. dollar. Currently the most popular stablecoin in the market, USDT is backed 100% by real assets in the Tether platform’s reserve account. Each unit of USDT has a monetary value of US$1, which is why we study its value in Bitcoin and Ethereum.
The correlation coefficient is a statistical measure of the strength of a linear relationship between two variables. The metric’s value ranges on a scale from -1 to 1.
A correlation coefficient with a value of -1 describes a perfect negative or inverse correlation, and the negative series signifies that when one rises other declines and vice versa. A coefficient of 1 shows a perfect positive correlation or a direct relationship, whereas a value of 0 means no linear relationship.
This metric is used in science and finance to understand the degree and type of association between two variables, assets, factors, or data sets.
The assets have maintained a positive correlation with the USDT for a while; however, figures from over a week signify negative values. The correlation coefficient of Bitcoin and USDT a month ago was 0.44, whereas that of Ethereum and USDT was 0.35, whereas a week, it was measured at -0.03 and -0.10, respectively.
Currently, the value of the correlation coefficient of USDT with that of Bitcoin is -0.07, and that of Ethereum is -0.02.
Analysts suggest that the negative values of the crypto assets with that of USDT have been triggered by the alleged collapse of FTX hitting the market and implies two significant conclusions.
According to the analysts, the crypto market is eventually moving towards normalcy, has found a conducive price range, and keeps on loop in the same cap. Second, shortly the macro sentiments will be restored, and then the impact would be similar on the U.S. dollar and the cryptocurrency prices.
Currently, Bitcoin is trading at $17,134.40, whereas Ethereum is trading at $1,293.21. The assets over a month have experienced 16% and 18% drops, respectively.
As per the Average True Range (ATR), the assets’ volatility has declined by over 40% for Bitcoin and 35% for Ethereum. Also, the assets Bitcoin and Ethereum have a very high value with a correlation coefficient of 0.88.
Also, the negative relation between the USDT and cryptocurrencies implies that the issues relevant to the dollar will continue to affect crypto. Todayq News reported that the comments of the Fed governor helped the crypto market capitalization surge. The correlation values make the central bank’s meeting on the fed funds rate scheduled for December 14 all the more important for the crypto sector.