Dec 12, 2019 02:06 PM | Charlie Custer

Privacy coins may appear to be different from the rest of the crypto market. Some suggest privacy coins are particularly risky since they’re sometimes used for crime and might catch the attention of regulators. Others argue that precisely because they’re censorship-resistant, privacy coins may be a better investment than other crypto tokens. 


It turns out, however, that privacy tokens have not performed that differently from the rest of the crypto world.  


To look at the link between privacy tokens and other coins, we examined historical USD price data from Coin Metrics for privacy coins Monero, Zcash, and Dash and compared them to Bitcoin by calculating how correlated the prices were with each other.


The table below displays Pearson correlation coefficients, but other methods for calculating correlation produced very similar results. Monero and Dash prices are strongly correlated with Bitcoin’s price. Zcash’s price is also correlated with Bitcoin’s, although not quite as strongly.


The chart below shows Pearson correlation coefficients between the daily prices of each token over their histories (as recorded in the Coin Metrics datasets). Any result above 0.7 is considered evidence of strong correlation:



BTC

XMR

ZCASH

DASH

BTC

1.00

0.86

0.48

0.78

XMR

0.86

1.00

0.83

0.95

ZCASH

0.48

0.83

1.00

0.91

DASH

0.78

0.95

0.91

1.00


Charting the price of these tokens visually makes it pretty clear that historically, there’s a strong connection between all three and Bitcoin:


mmexport1576086192472.jpg


But how about more recently? Calculating the same correlations year-by-year, we do see a decreasing correlation between Bitcoin and privacy tokens. All three tokens are strongly correlated with Bitcoin in 2017 and 2018, but so far in 2019, Zcash and Dash are showing only weak correlation. We shouldn’t overstate the significance of this, however. If we break down the data further and look at prices for the second half of 2019 to date — July 1 to December 9 — all three tokens are strongly correlated with Bitcoin again:



2019 2H

BTC

XMR

ZCASH

DASH

BTC

1.00

0.95

0.80

0.86

XMR

0.95

1.00

0.86

0.90

ZCASH

0.80

0.86

1.00

0.98

DASH

0.86

0.90

0.98

1.00



It’s certainly possible that in the future, regulatory attention could decouple privacy coins from the rest of the Bitcoin-linked crypto scene, either because regulators crack down on privacy coins specifically or because crypto enthusiasts are using them to evade regulations. 


But with Bitcoin now well past its tenth birthday, many countries have long since developed regulatory frameworks for crypto, and as of this moment, there’s not much evidence those regulations have changed much for privacy coins. Which means that for now, privacy coins remain largely in sync with Bitcoin.


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