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Bitcoin’s decoupling and reduced correlation enable small-cap asset rally

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The world of finance was shaken on March 12 when the markets started to realize the impact of COVID-19. Before the Black Swan event that engulfed most profits in the market, the cryptocurrency market had been rallying. Bitcoin, the largest digital asset that shares a strong correlation with most cryptocurrencies in the market. When the largest asset crashed, the plunge witnessed by other assets was also brutal. However, as the first half of 2020 ended with June, the dynamics in the market have flipped.

As Q1 painted a bloody picture across the crypto market, Q2 began with the excitement about the new developments and recovery set in the market. Up until May, the entire crypto market climbed steadily at a highly correlated growth rate. However, as May came to an end, only small-cap assets managed to keep up with the momentum. According to a report by Arcane, the small-cap assets rallied throughout Q2 and managed to gain 112%. Whereas the mid-cap assets maintained 50% growth, followed by Bitcoin at 44%, and lastly by other large-cap assets by 40%.

Indexes Q2.PNG

Source: Arcane

Q1 and Q2 brought different events in the market and the reaction from the market was at two extremes. As the first half culminated, the small-cap assets emerged winners with 141% growth, while mid-cap assets remained at 54%. The large-cap assets reported growth of just 29% and BTC could manage to report a growth of 27%.

Source: Arcane

The small-cap assets have managed to outperform not only Bitcoin but other indices too. This was due to the decoupling of small-cap assets from the rest of the market. The driving factors for coins like OmiseGo, Theta Token, and Icon were news about its development and even its listing on prominent exchanges. However, for the large-cap assets, the investors were too occupied by the imminent pressure in the bitcoin market.

The correlation between the small-cap assets and Bitcoin has also been weakening. Small-cap asset, OmiseGo’s [OMG] correlation with BTC peaked in May 2020 at 0.8895 and currently stands at 0.7256. Thus, the small-cap assets were rallying independent of the ups and downs in the bitcoin market.


Namrata is a full-time journalist at AMBCrypto covering the US and Indian market. A graduate in Mass communication, while majoring in Journalism, she writes mainly about regulations and its impact with a focus on technological advancements in the crypto space.
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