Litecoin ‘Digital Silver’ Narrative Is Proven Wrong, New Data Shows

The begin of 2020 has seen appreciable features within the cryptocurrency market as a complete. Recently, Bitcoin (BTC) worth reached a 2-month document excessive crossing above the $9,000 mark in addition to different cryptocurrencies corresponding to Litecoin (LTC) reaching $62.80 which is the best worth seen since mid-November 2019.

Cryptocurrency market weekly overview. Source: Coin360

Cryptocurrencies’ risky conduct is likely one of the fundamental issues raised by researchers and it complicates the argument that Bitcoin needs to be categorized as a conventional funding asset and that it’s a dependable retailer of worth.

Amid these discussions, Bitcoin has been intently in comparison with gold, whereas Litecoin has been related to being “the silver to Bitcoin’s gold.”

As reported by Cointelegraph, new information means that the precise correlation between Bitcoin and gold will not be vital, in addition to gold’s explanatory energy of Bitcoin returns. Nevertheless, Bitcoin remains to be ceaselessly in comparison with gold, notably as a possible safe-haven asset.

Since October 2019, silver costs have approached new record-highs. But does the most recent information assist the argument that Litecoin is the silver of cryptocurrencies? Could Bitcoin as a substitute of Litecoin be nearer to silver than to gold?

Silver prices since October 2019. Source: BullionVault

Is Bitcoin or Litecoin worth motion nearer to silver?

Our information — from May 2013 till December 2019 — exhibits that Bitcoin and Litecoin returns are very positively correlated (0.67) with 1 implying a powerful optimistic correlation and Zero which means that the belongings aren’t correlated. A studying of -1 exhibits that the belongings are fully inversely correlated.

Meanwhile, the correlation between silver and Litecoin returns is near zero (0.026), which is analogous to Bitcoin’s correlation with silver (0.0025).

We additional analyzed the correlation between the lagged silver returns and the 2 belongings. In different phrases, the correlation between yesterday’s silver returns and at present’s Litecoin and Bitcoin returns had been in contrast.

However, the outcomes are much more discouraging, since each present unfavorable correlations with the lagged silver returns. Bitcoin’s correlation was -0.03 whereas Litecoin’s was -0.05.

April 2013-December 2019 correlation between silver, Bitcoin and Litecoin returns and silver’s lagged returns

Analyzing the rolling correlations supplies a wider view and every information level within the diagram above refers back to the correlation of silver and Bitcoin returns (BTC/silver), and between silver and Litecoin returns (LTC/silver) during the last 30 days.

One can see that the correlation between Bitcoin and silver, and Litecoin and silver, may be very related throughout time throughout each unfavorable and optimistic durations.

Rolling correlations between Bitcoin/silver, and Litecoin/silver from May 2013-December 2019

Hence, each Bitcoin and Litecoin have a small correlation and related relationship with silver. Thus, the Litecoin as “digital silver” narrative is challenged by these very low correlation values. Moreover, it’s no shock that Bitcoin has surpassed each Litecoin and silver as one of the best funding choice over the previous ten years.

Cumulative Bitcoin, Litecoin and silver returns from investments made between May 2013 and January 2020

The relationship between digital belongings and commodities from 2019 and 2019

For traders, a better take a look at these relationships over the short-term may help draw higher insights for future funding methods. In 2019, the correlation between silver for each belongings is barely increased than the primary outcomes from May 2013 to December 2019, albeit nonetheless very low. Bitcoin is correlated at 0.05 with silver and Litecoin is correlated at 0.09.

Whereas in 2019, Bitcoin and Litecoin had reverse correlations to silver with Bitcoin and silver correlation being 0.03 and the Litecoin and silver correlation being unfavorable at -0.02. Even the correlation between Bitcoin and Litecoin returns is decrease than in different samples (0.74).

Nonetheless, each outcomes are very near 0, which leads us to imagine that the correlation between these belongings will not be consultant sufficient to attract dependable methods for traders.

Correlation in 2019 between Silver returns, BTC returns, and Litecoin returns 

Is silver a helpful predictor of Litecoin and Bitcoin returns?

The information, nevertheless, means that silver returns may match as a predictor for future Litecoin returns. From the mannequin employed, if silver’s return rose by 1% yesterday, we are able to count on that Litecoin returns might lower by -0.232% at present. This statistically vital outcome can lead traders to imagine that silver returns may match as a predictor for future Litecoin returns in a unfavorable method. Similar outcomes weren’t discovered within the case of Bitcoin, nevertheless.

The capability to foretell costs has been the holy grail of economic markets, therefore the significance of this relationship between returns. Even although each crypto belongings present a really low correlation with silver, the outcomes for the lagged returns shed some mild on the connection between silver and future Litecoin returns.

Looking ahead, traders might wish to take a look at silver returns to attract methods when shopping for/promoting Litecoin primarily based on this previous silver return’s evaluation. However, any technique has to think about the fast-changing crypto market atmosphere and cautious evaluation over totally different time durations, which may trigger totally different conclusions.

Nevertheless, these findings may help us to conclude that Litecoin because the digital equal of silver is far-fetched because of the low correlations. However, we do spotlight the worth of investigating the digital silver narrative by establishing a brand new connection between returns, which is essential for traders.

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