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Relationship Between Cryptocurrency Markets and Oil Futures

Sep 13, 2024 · by CryptoDataDownload

Cryptocurrency Markets and Oil

Newly published researched in Sept 2024 finds a relationship linkage and cointegration between cryptocurrency markets and different oil benchmarks. This research looked at period of data between January 2018 and May 2024 for West Texas Intermediate (WTI), Brent, Dubai French, and Urals oil benchmarks, and Bitcoin, Ethereum, Shiba Inu, Ripple, USD coin, and TrueUSD. Notably, the relationship was found to be statistically significant and strongest with Bitcoin and Ethereum, and weaker with the alt-coins. But you might be asking yourself, "what is the difference between cointegration and correlation?" Correlation measures shorter term linear relationships between variables, but cointegration describes a longer term equilibrium between two or more time series. The "moderate cointegration" implies that cryptocurrency are potentially being increasingly influenced by macro factors that are typical of the commodity markets. But these findings can be somewhat counterintuitive. There is little to weak predictive power of oil prices on cryptocurrencies on the shorter term horizons, so this relationship is harder to detect. Another reason the relationship is harder to detect is that the relationship seems to be time-varying, which means it can increase and decrease in strength across time. (Volatility and financial markets share this characteristic; "the relationship is not stable" and therefore harder to model).

Other Findings

The study also indirectly confirmed some findings of other research. For instance, the research confirmed a nearly 1 correlation between Brent and WTI Oil futures. Likewise, the correlation relationship between Bitcoin and Ethereum was found to be around ~0.80 positive, indicating they are also likely driven by the same underlying risk factors. Given the high correlation between Bitcoin and the rest of the cryptocurrency space, it remains a dominant barometer of the market. From a shorter term perspective, there were not any significant relationships between oil and cryptocurrencies, suggesting they operate independently day to day.

Author

Kyrylo Troian PhD Student, Department of Economics, Finance and Accounting, European University,

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