Bitcoin: Like a Satellite or Always Hardcore? A Core-Satellite Identification in the Cryptocurrency Market

TL;DR

This paper investigates the structure of the cryptocurrency market by identifying a core set of coins with similar statistical properties, enabling better portfolio management and tracking strategies.

Contribution

It introduces a novel segmentation method using image and pattern recognition techniques to distinguish core and satellite cryptocurrencies.

Findings

Identification of a core cryptocurrency group with similar statistical features

Demonstration of market segmentation into core and satellite components

Application of pattern recognition methods to financial market analysis

Abstract

Cryptocurrencies (CCs) become more interesting for institutional investors' strategic asset allocation and will be a fixed component of professional portfolios in future. This asset class differs from established assets especially in terms of the severe manifestation of statistical parameters. The question arises whether CCs with similar statistical key figures exist. On this basis, a core market incorporating CCs with comparable properties enables the implementation of a tracking error approach. A prerequisite for this is the segmentation of the CC market into a core and a satellite, the latter comprising the accumulation of the residual CCs remaining in the complement. Using a concrete example, we segment the CC market into these components, based on modern methods from image / pattern recognition.