As any cryptocurrency enthusiast, naturally the first question we ask when approaching trading is which currency to trade?
Realistically, at this stage there is basically:
- The mainstream/core/stable (relatively): bitcoin and ethereum
- The shitcoins – (yes, I consider BCC a shitcoin)
As for shitcoins, it takes some next level of cryptohustle to actually consistently make gains and the pull out.
Mostly its based around keeping a close eye on catalysts and playing accordingly.
Technical analysis plays a tiny role when it comes to shitcoins imo.
As for the 2 big dogs, ETH and BTC, the question is what to put your money in?
Bitcoin vs. Ethereum Price Correlation
So the first question that I wanted to answer is to actually understand how much these 2 currencies affect each other?
If one goes up, what happens with the other?
Since the time spans in the crypto world are measured in days, not years I will only be looking at August and September.
Going back further IMO is redundant.
Anyhow, so the first thing I did was to look at the PERCENTAGE changes and then plotting the changes on a graph.
Very briefly explained, if BTC = $1000 today and $1100 tomorrow, its +10$.
This is a good way to find a common denominator.
So in august, the correlation wasn’t as strong as I had expected.
They are literally MARRIED.
Joined at the hip.
Getting a little more technical I will look at the CORRELATION coefficient of the PRICE change for August and September.
I get ~ % 0.78
This is a very strong correlation (note: 1 is PERFECT correlation).
If I look at JUST september I get a WHOPPING 0.96% – which is basically EXACT correlation.
Just to vizually nail the point home, I have taken the ETH price and multiplied it by 10.
This will put it roughly in the same range in USD terms as BTC.
And here is september:
There is DEFINITELY. DEFINITELY. a very strong correlation between the price of ETH and USD.
Given their massive trading volumes, it’s hard to dictate which one drives the other.
(I will try to do this in another post).
Which is More Profitable to Trade?
And now the real mac daddy question of all time – what has more profit potential when it comes to trading?
I have created a simulation which I call the ‘perfect trader‘ and goes like this:
On the 1st of August 2017 I invest $1000 into both currency at the daily LOW and sell at the daily HIGH.
Note: I am using the ACTUAL historical High/Low data.
I repeat this day in and day out.
- Buy coins at the perfect daily low.
- Sell coins at the perfect daily high.
Note: naturally its not actually possible, but on a purely theoretical level its the only real tangible data I could think of using to answer the profitability question.
The result of this is quite interesting – check this out:
By the end of August, my
- ETH/USD trading pair would be worth: ~$9500
- BTC/USD pair would be worth ~$8200.
Lets continue the experiment into september and we get conclusive.
I think the numbers speak for themself.
Final Conclusion & Takeway
- ETH and BTC are extremely strongly positively correlated.
- Trading ETH is THEORETICALLY more profitable than BTC.
Hope you found this interesting.
Thanks for reading,