The answer to this question may help glean insight into Bitcoin's status as a speculative market. This speculation on speculation was due to a debate between a friend and I.
As a start point, we thought the Fed Funds Rate and the Bitcoin Market Capitalization values by date would be a data driven comparison. The Fed Funds Rate was chosen as it is the cost of the Federal Reserve to loan money to banks who loan money to investors. The Bitcoin Market Capitalization value was chosen as it measures how much money investors put into Bitcoin value.
The thought was that the Fed sets the rate for banks to borrow, which sets the bank rates, which investors use to choose to get a loan for Bitcoin. If there is a relationship, then Bitcoin we can see if there is a positive or negative correlation to it. We could also assume that investors' calculations include the cost of American dollars.
What we didn't ask was:
These were important questions we found after the analysis, and probably fodder for a future investigation.
Let's look at what we found.
The Andersen-Darling Test identifies if your data has a normal distribution. A normal distribution is what we sometimes call the bell curve; the shape shown when your histograms data has the highest point in its center, and slopes down to the left and right.
Neither the Fed Funds Rates nor the Bitcoin Market Capitalization values have normal distributions. This makes it unlikely there is a correlation between the two.
Statistic: 519.142 15.000: 0.575, data does not look normal (reject H0) 10.000: 0.655, data does not look normal (reject H0) 5.000: 0.786, data does not look normal (reject H0) 2.500: 0.917, data does not look normal (reject H0) 1.000: 1.091, data does not look normal (reject H0)
Statistic: 624.917 15.000: 0.575, data does not look normal (reject H0) 10.000: 0.655, data does not look normal (reject H0) 5.000: 0.786, data does not look normal (reject H0) 2.500: 0.917, data does not look normal (reject H0) 1.000: 1.091, data does not look normal (reject H0)
What follows is the data for the Bitcoin Market Capitalization value in comparison to the Fed Funds rate percentages, by date. the non-normal distribution of the data stacks the points in a bar chart. Visually we can already tell there is no correlation.
The Pearson Correlation Coefficient Test measures the linear correlation between 2 data sets. Basically, can you draw a trend line on your scatter plot with math. It measures on a scale of 1 to -1, where 0 means no relationship, 1 is a positive relationship, and -1 is an inverse relationship. An inverse relationship would be like magnets that push each other away.
There is no correlation between the Fed Funds Rate and Bitcoin Market Capitalization with a result of:
-0.0415504907254656
There is no relationship between the Fed Funds Rate and Bitcoin Market Capitalization. Bitcoin investors do not use the Fed Funds Rate to make decisions (or it at least has to correlation to their decisions).
Further investigation is neccessary to find what factors correlate to Bitcoin Market Capitalization. One possible avenue is an investigation into the rates banks charge to investors.
Have your own idea? Email us at contactus@wordsworth.rocks. Maybe we can do it for you!