Sebastian Sinclair

Crypto prices were flat over the weekend ahead of second quarter earnings from major stocks including Goldman Sachs, Netflix and Tesla.



Bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) has hovered around $30,300 since it dropped 4% on Friday, winding back gains from a <a href="https://blockworks.co/news/where-ripple-sec-case-goes-next" target="_blank" rel="noreferrer noopener">halfway-positive US district court ruling</a> in Ripple’s case against the SEC. Ether (<a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a>) has practically stayed put at $1,930.



Crypto’s correlation with major stock indexes <a href="https://blockworks.co/news/stocks-and-crypto-correlation-shows-signs-of-weakening" target="_blank" rel="noreferrer noopener">may have lessened</a> this year but second quarter earnings season could still boost valuations, Toby Chapple, head of trading from Australian trading firm Zerocap told Blockworks.



“Bitcoin especially will need a catalyst to go through upside resistance at these levels and a positive earnings season may be the driver for that event,” Chapple said.



Positive earnings outcomes would likely spur greater risk-taking in emerging assets, Chapple noted. Negative outcomes would lead to a more defensive stance from investors.



Wall Street, at least, is preparing for a potentially bleak season marked by declining company profits. 



Analysts predict a decline of more than 7% in S&amp;P 500 earnings compared to the same period last year, according to <a href="https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_071423A.pdf#:~:text=Earnings%20Decline%3A%20For%20Q2%202023,Q2%202020%20(%2D31.6%25).&amp;text=Earnings%20Revisions%3A%20On%20June%2030,Q2%202023%20was%20%2D7.0%25." target="_blank" rel="noreferrer noopener">FactSet data</a>. 



Crypto investors may closely watch Coinbase earnings. COIN is up more than 200% this year, bolstered by the world’s largest asset manager, BlackRock, <a href="https://blockworks.co/news/blackrock-clout-bitcoin-etf-approval" target="_blank" rel="noreferrer noopener">naming the exchange</a> as a bitcoin custodian in a renewed spot ETF filing last month. 



Coinbase reported a <a href="https://blockworks.co/news/coinbase-smaller-net-loss" target="_blank" rel="noreferrer noopener">net loss of $79 million</a> in Q1, down from <a href="https://blockworks.co/news/coinbase-stock-plummets-as-crypto-exchange-posts-430-million-loss" target="_blank" rel="noreferrer noopener">$430 million lost</a> in 2022’s first quarter. Coinbase called it “turning point” in building a more financially disciplined company. The firm is expected to report Q2 earnings early next month.



Bitcoin miners <a href="https://blockworks.co/news/riot-microbt-bitcoin-us" target="_blank" rel="noreferrer noopener">Riot</a> and Bitmining are respectively up 467% and 165% in 2023. Riot is expected to report second-quarter earnings on August 26 while Bitmining should report a week earlier.



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Crypto prices flat as markets hold breath for Coinbase earnings

Trade activity for the world’s largest digital asset this year has, so far, remained fairly neutral to wider macroeconomic developments as market demand for bitcoin continues to prop up its price.



Assuming the November 2022 lows represent the bottom of the previous cycle, it&#8217;s possible to analyze the extent of the “bull market corrections” up to this point, Glassnode said Monday.



The steepest decline recorded for bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) this year represents a mere -18%, which is low when compared to past cycles of bygone eras.



Data shows that, on average, bitcoin’s prior peak-to-troughs stood at roughly 48%, suggesting a “relatively strong degree of demand” for bitcoin currently exists, <a href="https://insights.glassnode.com/the-week-onchain-week-28-2023/" target="_blank" rel="noreferrer noopener">Glassnode said</a>.


<div class="wp-block-image">
<figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="1451" height="628" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/07/glassnode-prior-drawdowns-btc.jpg?w=1024&amp;h=1024" alt="" class="wp-image-61439" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/07/glassnode-prior-drawdowns-btc.jpg?w=1451 1451w, https://blockworks-co.imgix.net/wp-content/uploads/2023/07/glassnode-prior-drawdowns-btc.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/07/glassnode-prior-drawdowns-btc.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/07/glassnode-prior-drawdowns-btc.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/07/glassnode-prior-drawdowns-btc.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/07/glassnode-prior-drawdowns-btc.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2023/07/glassnode-prior-drawdowns-btc.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/07/glassnode-prior-drawdowns-btc.jpg?w=80 80w" sizes="(max-width: 1451px) 100vw, 1451px" /><figcaption class="wp-element-caption">Bitcoin&#8217;s bull market correction drawdown history; Source: <a href="https://insights.glassnode.com/the-week-onchain-week-28-2023/" target="_blank" rel="noreferrer noopener">Glassnode</a></figcaption></figure></div>


To further that point, the number of unique addresses holding 1 BTC surpassed the <a href="https://blockworks.co/news/million-addresses-own-1-bitcoin">1 million threshold</a> for the first time on May 17 of this year — an indication of greater adoption.



Bitcoin’s hash rate, also another measure of adoption based on the network’s increase in security, rose to fresh heights on July 9, above 402 ExaHash per second (EH/s), <a href="https://www.lookintobitcoin.com/charts/bitcoin-hashrate-chart/" target="_blank" rel="noreferrer noopener">data shows</a>.



Mathias Beke, co-founder and CTO at market maker Kairon Labs, told Blockworks current sentiment and price action marked a “typical recovery phase.”



When asked if traders were looking to sell following excess market froth following Blackrock’s spot bitcoin ETF application, Beke said they were wary of potential declines and as such are not making significant moves in either direction.



“We think it’s a mix of big tech being fairly parabolic, but it looks like they might cool down a bit,” he said.



Still, uncertainty surrounding the US market and its approach to digital asset regulation has given traders pause, particularly as the asset’s four-year halving event swiftly approaches.



“At the moment there’s a lot up in the air around Binance, as well as the liquidations that could take place from FTX and Celsius,” Beke said.



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Bitcoin seeing ‘strong demand’ as crypto market eyes ‘recovery phase’

Digital assets are sometimes hailed as a unique asset class that moves independently of others, but analysis from S&amp;P Global suggests crypto is not insulated from broader economic influences.



Of those macroeconomic factors, the impact of global market volatility was most pronounced.



In its <a href="https://www.spglobal.com/_division_assets/images/special-editorial/are-crypto-markets-correlated-with-macroeconomic-factors/are-crypto-markets-correlated-with-macroeconomic-factors.pdf?utm_medium=email&amp;utm_source=newsletter&amp;utm_campaign=newsletter_axioscryptocurrency&amp;utm_term=undefined&amp;utm_content=undefined&amp;gclid=undefined">report</a>, titled “Are crypto markets correlated with macroeconomic factors?” and published this month, the firm tries to address some of the industry’s biggest themes, such as whether crypto can serve as a hedge against inflation and the impact of the strength or weakness of the US dollar.



It also attempts to address the potential for financial stresses and market volatility to spill over into the industry, as well as the impact of monetary policy.



<h2 class="wp-block-heading">Traditional financial stress and market volatility</h2>



The study found a correlation between increased financial stress, market volatility and declining crypto prices. This suggests a potential contagion risk, where upheavals in traditional finance could spill over into the crypto market.



S&amp;P pointed toward two major macroeconomic impacts on digital assets including when the World Health Organization declared COVID-19 a global pandemic in March 2020.&nbsp;



Around that time, on March 12, bitcoin shed an incredible 39% — one of the worst single-day losses in the asset’s history.



Other incidents have also highlighted the contagion risks from traditional finance. That included this year’s banking crisis, when <a href="https://blockworks.co/news/circle-stand-behind-usdc">the failure of SVB briefly forced</a> two major stablecoins USDC and DAI to depeg roughly 13%.



Crypto prices have been found to have an inverse relationship with the VIX and OVX indexes, both used as a measure for volatility, suggesting that as market fear and volatility increase, crypto prices tend to fall.



Though, as current macroeconomic factors trends take shape, not all agree on their significance.



“Bitcoin’s price is showing resilience amid ongoing economic uncertainty, remaining strong and steady even with open questions around the debt ceiling, inflation, and upcoming interest rate decisions,” Alex Adelman, CEO and co-founder of Lolli told Blockworks via email.



The robust price trends exhibited by bitcoin reveal that investors persistently favor it as an independent asset, he said. Despite macroeconomic fluctuations, the asset has consistently upheld its value, reinforcing its appeal among investors, according to Adelman.



Others have argued that <a href="https://blockworks.co/news/federal-reserve-policy-confidence-banks">banking sector stress</a>, specifically, <a href="https://blockworks.co/news/banking-sector-versus-defi">may be a tailwind</a> for crypto.&nbsp;



<h2 class="wp-block-heading">Monetary and fiscal policy impacts</h2>



In its research, S&amp;P found the impact of monetary policy on crypto can also be significant. Expansionary monetary and fiscal policies that increase disposable income can boost investment in “risk on” assets like crypto.&nbsp;



Conversely, the prospect of tighter monetary policy, such as interest rate hikes, can increase financial stress and market volatility which, in turn, can send digital assets falling.



Unprecedented levels of monetary easing by central banks globally since 2008/09 have inflated the money supply to record levels, which have typically moved in tandem with bitcoin’s price.



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Deciphering Crypto Macro Correlations, S&P Global Highlights Volatility

As central banks continue to struggle with economic uncertainty amid concerns of hyperinflation, investors are turning to digital assets to protect their wealth.



Bellwether bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) climbed to its highest level in nine months, just above $28,400, on Sunday — representing a 69% increase on a year-to-date basis.



Price action is being driven by spot buys which is positive for the health of the trend, with the market yet to see froth and euphoria in capital allocation, Kurt Grumelart, a trader at Zerocap told Blockworks.



“The majority of this flow is hedge funds and other large market players positioning themselves in anticipation of a flight to safety more so than the actual flight to safety itself.”



Despite this, a comparison to global markets over the last two weeks shows that bitcoin is being actively considered as a risk hedge alongside and, potentially, instead of gold by serious players, Grumelart added.



By comparison, traditional markets have fared much worse, impressing long time crypto market watchers.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">WHY IT&#39;S DIFFERENT THIS TIME During the Covid crisis, did bitcoin have its moment? Not really, it nuked harder than anything instead of acting as a safe haven—and then traded like a junk risk stock on steroids, mooning at the same time as dogecoin and monkey jpegs. During the… <a href="https://t.co/L9t6clLudF">https://t.co/L9t6clLudF</a> <a href="https://t.co/CZZ9eMtMFG">pic.twitter.com/CZZ9eMtMFG</a>&mdash; Eric Wall 🧙‍♂️ Taproot Wizard #2 (@ercwl) <a href="https://twitter.com/ercwl/status/1637573829642862595?ref_src=twsrc%5Etfw">March 19, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The Dow Jones Industrial Average, which measures the performance of stocks listed on the New York Stock Exchange (NYSE) and the Nasdaq, is down about 3.8% for the year.



US oil, as reflected by the West Texas Intermediate (WTI) crude oil index, has also performed poorly, posting a more than 13% loss over the same period. Meanwhile, gold — often considered a hedge against inflation and market uncertainty — is up around 9% year-to-date.



Bitcoin’s recent outperformance can be attributed to a number of factors, including the narrative of store-of-value, which has returned to prominence despite its past inability to perform that role in practice.



Grumelart pointed to bitcoin’s storied origins in the 2008 financial crisis, as a tool to combat negligence within the existing financial system, and said the current economic climate marked “a perfect storm” for bitcoin to prove its worth.



That climate is the culmination of a series of spectacular bank failures in the US and abroad which threatened to boil over this month, prompting regulators to step in and provide a backstop for depositors.



After the <a href="https://blockworks.co/news/silicon-valley-bank-meltdown-has-little-to-do-with-crypto">collapse of Silicon Valley Bank</a> and the <a href="https://blockworks.co/news/fdic-sells-signature-bank">FDIC shut down of Signature Bank</a>, First Republic Bank was also propped up by a private sector rescue and banks drew on nearly $12 billion of loans from the US Federal Reserve’s <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm" target="_blank" rel="noreferrer noopener">new emergency lending program</a>.



And on Sundsy, Swiss banking giant Credit Suisse was saved from collapse by a takeover from rival UBS in a <a href="https://www.ft.com/content/9fe40e6a-f01f-4205-b885-7771d305721e">$3.25 billion deal</a>.



<h2 class="wp-block-heading">Short-term liquidity boost is bitcoin’s gain</h2>



In total, nearly <a href="https://twitter.com/LynAldenContact/status/1636470293068644358?s=20" target="_blank" rel="noreferrer noopener">$300 billion</a> has been supplied via expansion of the US Federal Reserve’s balance sheet, including of a record <a href="https://www.marketwatch.com/story/fed-balance-sheet-balloons-by-almost-300-billion-after-svb-failure-and-effort-to-stop-bank-runs-f58cd3d8" target="_blank" rel="noreferrer noopener">$153 billion drawn</a> from the Fed’s discount window. 



All eyes are now locked on the outcome of the next FOMC meeting on Wednesday where the Fed will decide either to scale back its campaign of increased rate hikes, designed to combat inflation, or continue business as usual which has contributed to the breaking of the US retail banking sector.



“A number of central banks are stuck between a rock and a hard place, they simply cannot afford to let the banking sector collapse,” Grumelart said. “While the liquidity spike is positive for all assets, the implications of the action just taken are still unknown.”



The <a href="https://blockworks.co/news/stocks-and-crypto-correlation-shows-signs-of-weakening">correlation between bitcoin and equities</a> has been largely influenced by the perception the crypto industry, until the recent crisis, served as a risk-on indicator that was closely connected to the economic performance and monetary policies of the US and global markets.



While financial companies have been struggling, the <a href="https://www.barrons.com/articles/bank-crisis-apple-google-tech-stocks-fd937612" target="_blank" rel="noreferrer noopener">tech sector has been resilient</a>, with the Nasdaq Composite up over 4% and the Technology Select Sector SPDR Fund up about 17% for the year.



Tesla and Nvidia, up 67% and 79% YTD respectively, have their own unique drivers that have propelled their prices in recent months, Grumelart said. High-beta risk assets are primarily affected by <a href="https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.pr230319~744758829c.en.html" target="_blank" rel="noreferrer noopener">market liquidity</a> and risk appetite, leading to periods of correlation. 



Although many risk assets have seen short-term gains, should economic conditions continue to deteriorate, high-growth equities are expected to suffer. But Grumelart is looking for bitcoin to decouple from Big Tech and follow commodities instead.



“If inflation reaches a double peak, it is likely that most high-performing assets, with the exception of commodities and bitcoin, will reverse most of their gains for the year,” he said. &#8220;The world should be glad that we have bitcoin as an option to protect our wealth in moments like this.&#8221;



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Bitcoin Price Gains Momentum as ‘Store of Value’ Amidst Banking Turmoil

The Investor’s Guide to Crypto Correlation

Indexes of major US stocks and crypto have ceased moving in tandem, for now.



A faltering connection between the pair could hint at the waning impact of macroeconomic factors on digital assets, including ongoing rate hikes and creeping inflation.



Diverging from a close correlation established last month, the relationship between the two asset classes has dropped to its lowest point in three months, <a href="https://app.intotheblock.com/insights/markets/indices/western" target="_blank" rel="noreferrer noopener">IntoTheBlock</a> data show.



As measured by a 30-day correlation coefficient, data on the performance compared to that of bitcoin show a reading of between -0.1 and -0.3 across the tech-heavy Nasdaq 100, the S&amp;P 500 and the Dow Jones Industrial.



Bitcoin finished 0.2% down on Monday at $23,500 after rallying 3% to $24,000, then conceding most of the day’s gains. US indexes, meanwhile, finished between 0.2% and 0.6% higher, buoyed by a rebound in fast-growth tech firms following a <a href="https://www.wsj.com/articles/global-stocks-markets-dow-update-02-27-2023-426fc9b9" target="_blank" rel="noreferrer noopener">disastrous last week</a>.



A coefficient of 1 indicates a strong positive correlation between the two prices, while a coefficient of 0 suggests no correlation. A posting of -1 implies a strong negative correlation, where the prices of bitcoin and a given asset tend to move in opposite directions.



Throughout 2022, crypto and US equities had largely tracked their performance to each other and had not dipped into negative territory until the collapse of FTX in November, data show.&nbsp;



By late December, the correlation began to recover from its lowest print in over two years before reaching local highs in late January — a correlation not seen since early September 2022.



Although liquidity is still circulating in the US equity markets, crypto investors are cautious and capital is drying up, Sylvia To, research lead at crypto exchange Bullish told Blockworks. That, in turn, is prompting market makers post-FTX to reinforce their counter-party risk frameworks.



&#8220;Liquidity is rather thin in crypto at the moment so it doesn&#8217;t take much to move markets,&#8221; she said. &#8220;We&#8217;ve seen a series of shorts liquidated in the past few weeks driving that rebound in BTC/USD with strong support past that $20,000 zone.&#8221;



It comes as the number of bitcoin whales has dropped to its lowest point in three years to 1,663, <a href="https://studio.glassnode.com/metrics?a=BTC&amp;m=entities.Min1KCount" target="_blank" rel="noreferrer noopener">Glassnode data</a> show. That figure was slightly lower than last week’s recording of 1,664, hinting at a decline in the number of large bag holders.



According to Glassnode, the metric can be interpreted as a positive sign for the crypto as it may point to ownership becoming more decentralized.



Bitcoin whales by Glassnode’s standards are individuals who hold more than 1,000 BTC and can potentially shift markets due to their ability to buy or sell large amounts of the asset at once.



The amount of bitcoin currently being held or lost, as opposed to being actively traded or used for transactions, also hit its highest point in five years above 7.6 million BTC, <a href="https://studio.glassnode.com/metrics?a=BTC&amp;m=indicators.HodledLostCoins" target="_blank" rel="noreferrer noopener">Glassnode data</a> show.



The figure suggests that a large amount of bitcoin is currently being held for the long term or is not accessible, which is typically seen as a bullish sign.



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Stocks and Crypto Correlation Shows Signs of Weakening

Casey Wagner

<div id="highlights-block_62bc8f1cb2be3" class="highlights">
 <ul>
 <li>Bitcoin and ether fell back from previous record-breaking correlations with stock prices</li>
 <li>Traders still have an eye on equities though, and a rebound in stocks is expected to be good news for crypto prices</li>
 </ul>
 
</div>



Bitcoin and ether prices have decoupled from their previous all-time high correlations with equities, but experts say traders shouldn’t write off stock prices just yet.&nbsp;



In May, the correlation coefficient between bitcoin and the tech-heavy Nasdaq broke 0.8 for the first time — bitcoin’s correlation to the S&amp;P 500 also hit similar levels in early May. In June, the correlation between bitcoin and the S&amp;P 500 fell to around 0.5, according to <a href="https://charts.coinmetrics.io/correlations/#435" target="_blank" rel="noreferrer noopener">data</a> from Coin Metrics. A coefficient of 1 means the assets are moving in tandem, while a -1 signals the opposite. 


<div class="wp-block-image">
<figure class="aligncenter"><img decoding="async" src="https://lh3.googleusercontent.com/o0MhaK6N_M9A14tljOY3FoWyVnz9CU1wtTzlLLWLU_3Szzzv8aWzW8Jr096jug_pU31jlVt3U0-ixEd7z2idLTXz_2PVbtRQoNXLEUJZkVpdNKER-9YJZQWEJH9DuAn2jhlpCfX4GLopRw5psw" alt=""/><figcaption>Source: Kaiko</figcaption></figure></div>


“Previous all-time highs were reached in the aftermath of the March 2020 crash, where all financial assets experienced extreme drawdowns, which saw BTC&#8217;s correlation with the S&amp;P 500 hit 0.76,” said Clara Medalie, strategic initiatives and research director at data provider Kaiko.



<blockquote class="wp-block-quote">“Since May&#8217;s all-time highs, bitcoin&#8217;s correlation has since retraced following a divergence in trading patterns for the two asset classes.” </blockquote>



Ether, which for the past six months has traded almost as one with bitcoin with a correlation coefficient of 0.9, has experienced the same trend. In May, the correlation coefficient between ether and the S&amp;P 500 broke 0.7 before falling to around 0.60 in June, according to <a href="https://charts.coinmetrics.io/correlations/" target="_blank" rel="noreferrer noopener">data</a> from Coin Metrics. 



“This divergence was spurred by a wave of dramatic collapses of some of the industry&#8217;s largest firms, causing crypto prices to tank far faster than equities,” Medalie said.&nbsp;



But even as bitcoin and ether begin to trade more independently from equities, the broader trend is likely to continue.&nbsp;



“Crypto is highly correlated to equities, so if equity markets were to turn around, this would likely have a bullish effect on crypto,” Medalie said.



<blockquote class="wp-block-quote">“It is clear that investors have treated equities and cryptoassets as risky assets over the past few months amid an increasingly fraught macro environment.” </blockquote>



Analysts are not holding their breath for a stock market bounce anytime soon, especially with current inflation levels and increasing uncertainty surrounding the Federal Reserve’s plans for interest rate increases.&nbsp;



“No one wants to buy the dip anymore after seeing a few stock market rebounds get completely faded,” Edward Moya, senior market analyst at OANDA, wrote in a note Wednesday. “Investors removed $10 billion out of equity funds last week and it doesn’t seem likely that sentiment will dramatically improve that the Fed will be able to deliver that soft landing.”&nbsp;



Traders are still keeping a close eye on stocks, Dan Matuszewski, co-founder of investment firm CMS Holdings, said. Invesco’s QQQ Trust, known as the Qs, is one tech-heavy ETF Matuszewski said he’s always watching.&nbsp;



“We mostly do what the Qs are doing,” Matuszewski said. “They’re a pretty good proxy for a while now, at least until things calm. I say this because we come in every day and sometimes we’re really just trading the Qs.”



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crypto correlation