Market Wrap: Bitcoin Finishes the Week in Positive Territory Again

Hi, I’m Glenn Williams Jr., here to take you through the day’s crypto market highlights and news.

Bitcoin (BTC) advanced slightly on Friday to trade just over $23,000, recently up 0.6% over the past 24 hours.

Friday’s performance resulted in a 14% increase for the largest cryptocurrency by market capitalization over the previous seven trading days.

Bitcoin’s price has begun to decouple from traditional markets over the last 30 trading days. While its 90-day correlation with the S&P 500 sits at 0.96 (implying lockstep movement between the two), its 30-day correlation with the S&P 500 has declined to 0.78.

While 0.78 still implies a strong relationship between the two assets, the decline indicates that the two assets have begun to trade more independently of each other.

In traditional equity markets, the S&P 500 and Nasdaq were down 0.7% and 2.1%, respectively. West Texas Intermediate crude oil (WTI) is down 0.5%, while gold’s price has increased by 0.6%.

Ether (ETH) prices increased 1.59% on Friday.

Polkadot (DOT) and chainlink (LINK) led the gainers among alternative coins (altcoins) in the CoinDesk 20 index, rising 1.6% and 0.5%, respectively. Solana (SOL) and cosmos (ATOM) were the biggest losers, falling 4.29% and 4.22%, respectively.

Today’s edition of “Market Wrap” was produced by Sage D. Young.

By Glenn Williams Jr.

As we close the week, let’s look at how markets performed overall.

BTC and ETH outperformed traditional asset classes on the week, but still trail when looking at year-to-date performance. There’s also a noticeable shift in correlations when we narrow the time frame from 90 to 30 days.

For context, we use the correlation coefficient to examine the strength of the relationship between the price movements of different assets. A correlation close to 1 indicates a strong relationship between assets, while a correlation of zero indicates no relationship. Moreover, a correlation of -1 indicates a complete inverse relationship between the assets in question.

What we’ve noticed over the last 30 days of trading is that while BTC and ETH remain strongly correlated to each other (and will likely continue to be), the correlation between cryptocurrencies and traditional assets is beginning to return to levels witnessed earlier this year.

Funding rates continue to indicate BTC buying strength

An indicator that we broached earlier this week which bears reexamination is the current level of BTC funding rates. As a reminder, funding rates represent payments to traders that are long or short BTC. They can reflect trader sentiment within futures markets. When funding rates are positive, investors often view this as bullish in nature. Conversely, when funding rates are negative, investors view this as bearish. As it stands, BTC funding rates have been positive every day in July, except July 1, July 10 and July 15.

What are we keeping an eye out for next week?

Macroeconomic conditions were quiet Friday, but we will be eyeing a couple of key data points next week. Most notably will be the Federal Open Market Committee’s (FOMC) interest rate decision on Wednesday of next week. We fully expect rates to increase by 75 basis points, as reflected in current consensus estimates.

Note that we offer no exotic formula or tools of prognostication in voicing our expectations for FOMC decisions. We essentially monitor what they say, using tools like the FOMC “dot plot” (pictured below) as a guide.

For context, the FOMC dot plot is simply a record of each Federal Reserve official’s projection for the Fed Funds rate. We expect that rates will increase to 2.5% next week and approach 3.5% by the end of 2022. To the extent that this remains unchanged, we anticipate that the price of BTC already reflects this data.

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.