Cross-country crypto - what it is and how to trade them
If you come to trade on crypto trading, for example on popular Exmo, instead of the usual on forex brokers pairs combined with USD, you will see so-called cryptocross - pairs ETHBTC, LTCBTC, etc. Since in the world of crypto the role of dollar, the main currency, is performed by Bitcoin. Today we will figure out how such couples analyze and trade.
Most often, the value of crypto is determined at the expense of the dollar, which is convenient for comparing their relative value. Crosshairs provide a clear representation of the direct relationships between crypto currencies, allowing for completely different earning strategies.
The value of any currency is always relative. When you buy a currency pair, you always buy a unit of one currency for a certain amount of another, which is determined by the exchange rate. For example, the BTCUSD rate determines how many dollars 1 Bitcoin costs.
Cryptocurrencies are commonly traded in tandem with the US dollar, the main reserve currency in today 's settlement system. Thus it is convenient to compare the relative cost of different crypto, having for all a single point of reference.
Cross exchange rate, in fact, is called a currency pair, which does not contain a dollar. At the direct conversion rate of the two crypto, it is possible to determine the degree of their relationship, as well as the stronger and weaker currency of the pair.
Correlation calculation is one of the numerical methods for estimating the strength of the relationship between two price series. A strong relationship means that currencies move in concert most of the time with a positive correlation coefficient, tools move in a co-directional manner, with a negative one in opposite directions.
Since the value ratio of the two correlating currencies hardly changes, the exchange rate of the currency pair (cross-rate) will then move horizontally. That is, when you see a cross-rate that is almost all the time in a horizontal channel - you are dealing with interconnected currencies.
For many Altkoins and the market of crypto as a whole, Bitcoin was and remains the main reference point, it is possible to say, a benchmark of opportunities. As we know, the market is managed by money, and Bitcoin ranks first in capitalization among all crypto, so it has every right to set trends.
Take, for example, Lightcoin, who brought nothing new and revolutionary to the world of crypto, and deserved his glory only thanks to an early appearance. In fact, it is a simple fork of Bitcoin with some improvements designed to correct the fundamental shortcomings of blockchain. It turns out that in this pair the unambiguous leader (leading currency) is Bitcoin. If Bitcoin grows, Lightkoin will grow.
Apart from Lightkoin, a strong connection with Bitcoin has many currencies in the top ten by capitalization. The same Ripple and Ethereum move in a coordinated manner with Bitcoin and the silver crypto, in particular.
The correlation graph (bottom window) shows that the link between LTC and BTC is almost always positive (greater than zero). It follows that the investor environment of Bitcoin and Lightkoin is mostly intersected - there is a mutual redistribution of capital between currencies. In case of a lag from his big gathering Lightkoin will certainly try to catch up, having picked up the trend of Bitcoin.