How to decide when to buy XMR based on BTC and ETH prices + why is this important for an investor?
Every crypto investor or trader that is continually watching the market knows that wherever BTC’s price goes, the altcoins will follow. There’s no doubt that other factors, such as political events and price predictions, can influence market sentiment; but nevertheless, when looking at altcoin prices in a broader timeframe, it’s evident that most of these prices depend on Bitcoin and its valuation, especially Ethereum, followed by Monero (XMR).
Monero (XMR) is a privacy-focused cryptocurrency. It enables untraceable and anonymous transactions through the use of cryptographic technologies. It’s increasingly popular because of its solid privacy terms and guarantees. It emerged in 2014 and has gained its reputation as the best cryptocurrency for the darknet because of its robust privacy features.
Why You Need to Know BTC and ETH Prices to Buy XMR
Crypto Correlation Coefficient Strategy
How to Use the Correlation Coefficient to Make Investment Decisions
How to Decide When to Buy XMR Based on BTC and ETH Prices
Why You Need to Know BTC and ETH Prices to Buy XMR
Since most altcoins follow Bitcoin valuation and Ethereum always follows closely behind, it’s essential to know the prices of these two leading currencies before buying Monero. To determine when to buy XMR based on their prices, you can use the crypto correlation coefficient strategy.
Crypto Correlation Coefficient Strategy
The basics of this are knowing the correlation coefficient and using this to calculate the influence of BTC and ETH prices over XMR. The coefficient is usually between -1 and 1 (Pearson Correlation Coefficient), with -1 showing that the currencies are moving in opposite directions and 1 indicating that they are moving in the same direction.
BTC and XMR have a correlation coefficient of 0.89, which shows that they move in the same direction. Based on this analysis, Bitcoin’s price has almost an 80% influence on Monero’s value, with other factors taking about 20%.
There are two correlation coefficients, which are:
- The Pearson Correlation Coefficient.
- The Spearman Coefficient.
How to Use the Correlation Coefficient to Make Investment Decisions
There are two main ways in which you can use the correlation coefficient to make sound investment decisions.
- Avoid investing in negatively correlated coins: As long as you know which coins are positively correlated to BTC and ETH, you can avoid investing in those going towards the opposite price direction. By doing this, the losses of one currency can be canceled out by the other one.
- Diversify your crypto portfolio: It’s also easy to efficiently diversify your investment portfolio with the correlation coefficient. Instead of sticking to one, you can invest in different currencies with high levels of positive correlation.
How to Decide When to Buy XMR Based on BTC and ETH Prices
You can easily decide the best time to buy XMR by discovering the correlation coefficients between it and BTC or ETH, or both.
Once you notice a high positive correlation, you can buy Monero coins and wait for your vast returns. You can easily make your investments through exchange platforms that allow you to exchange XMR to BTC and vice versa.
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“Once you notice a high positive correlation, you can buy Monero coins and wait for your vast returns.”
What would you consider “high”?
And you didn’t provide any further information following discerning between the Pearson and Spearman correleation coefficients. When should each be used in what circumstances?