Try Quests to earn SOLAlgorand Price Correlation
Introduction
In any market including Crypto market the stock value is determined by supply and demand. In stock market what influences the demand and supply of a company's stock is its underlying business. If the business of the company is doing well, demand for its stock rises as expectations for profits increases. The increase in demand leads to an increase in the stock price. Conversely, if the company isn’t performing well investors want to sell their shares in the company thereby increasing supply.
This dashboard examines whether this logic is applied for Crypto market, in particular for the case of Algorand.
Method
The hypothesis (H1) is that better performance of the Algorand blockchain leads to an increase in price.
- To measure the performance, the daily number of transactions as a proxy of popularity and the daily amount of ALGOs generated through transaction fees as a proxy of profits are considered.
The alternative hypothesis (H2) is that the crypto market in general largely influence the demand and supply of altcoins like Algorand.
- To test this hypothesis the price of BTC has been calculated over time.
The graph below shows the daily number of transactions and fee generated by transactions over time.
The graph below shows the daily amount of ALGO transferred over time. we can see that the ALGO transferred amount has not changed significantly since October 2021.
Graphs below show how the price of ALGO, SOL and BTC has changed over time since October 2021. We can see that the price of BTC and SOL go somehow hand in hand in many times. We can see the same pattern of changes in ALGO and BTC price over time. However, in some periods they are not follow each other.
The graph below show the relationship between ALGO transferred amount and ALGO price.
We cannot see a clear relationship between the two variables.
The graph below shows the relationship between ALGO price and BTC price.
We can see there is a correlation between the two prices. However, the correlation in some ranges is higher than the others.
Number of transactions influences ALGO price most, when the BTC price is lower than 50K
The graph below shows the relationship between the daily average of BTC and SOL price. We can see a positive high correlation between the two prices.
Conclusion
Two hypotheses have been tested.
H1: There is no evidence to fully support the effect of performance (number of transactions and Algo amount transferred) on ALGO price.
H2: The data shows correlation between the price of ALGO and BTC.
Discussion
While we can see a correlation between the price of ALGO and BTC in general, in some periods the correlation is very low. Also the correlation when ALGO price is less than 1 USD is differ from when the price is more than 1 USD.
When ALGO is less than 1 USD we can see the relationship between the daily number of transaction of price as well.
The interpretation this relationship whether is causal and in what direction is challenging.
We see the correlation between SOL and BTC price is solid and significant.