Casey Wagner

<div id="highlights-block_630911f69039f" class="highlights">
 <ul>
 <li>Equities and cryptos plunged lower Friday in the aftermath of Jackson Hole</li>
 <li>Bitcoin especially is trading like a big tech stock, analysts say, and until there is a change in macro conditions, this will continue</li>
 </ul>
 
</div>



Markets extended declines Friday after Federal Reserve Chairman Jerome Powell took a more hawkish stance during his Jackson Hole remarks. Cryptocurrencies slipped further into the red as traders became increasingly discouraged by the Fed’s likely move in September.&nbsp;



The S&amp;P 500 and Nasdaq were trading 2.3% and 2.8% lower, respectively, at time of publication. Bitcoin and ether similarly lost 4% and 7%, respectively.&nbsp;



“Today&#8217;s reaction to Fed Chairman Powell&#8217;s speech at Jackson Hole is somewhat surprising, as he did not really say anything new, at least to Fed watchers, and markets had appeared to have largely priced in a 75 basis point rate hike,” Bill Cannon, head of portfolio management at digital asset fund manager Valkyrie Investments, told Blockworks.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Powell has been transparent through his comments recently that rate hikes were needed to cool inflation, and today&#8217;s statement reinforced this strategy,” Cannon said.</blockquote>



Cryptos have struggled to turn around this year. Bitcoin and ether are both down more than 50% year-to-date, and without a significant shift in macroeconomic conditions, analysts are not expecting a rally.&nbsp;



“With inflation, unfortunately bitcoin acts like a tech stock,” Patrick Feeney, former hedge fund trader and founder of Feeney Factor, said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“[Bitcoin is] supposed to be digital gold, but it&#8217;s just not panning out that way lately,” Feeney said.&nbsp;</blockquote>



<h3 class="wp-block-heading">Bitcoin correlation and market expectations</h3>



Bitcoin’s correlation coefficient with the S&amp;P 500 hit 0.64 in early May before falling to around 0.4 earlier this month, 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 perfectly in sync.&nbsp;



The trend is back on the rise though, data shows, with the correlation coefficient hovering near 0.5 earlier this week.&nbsp;



“For the past year, crypto and equity markets have traded tightly together,” Clara Medalie, strategic initiatives and research director at data provider Kaiko, told Blockworks <a href="https://cms.blockworks.co/bitcoins-correlation-with-stocks-bonds-hits-3-month-low/" target="_blank" rel="noreferrer noopener">earlier this month</a>. “What we’ve seen over the past year is that correlations tend to strengthen around key releases of economic data, such as Fed meeting notes or inflation numbers.”&nbsp;



Recent data, such as plunging unemployment numbers and the <a href="https://cms.blockworks.co/inflation-is-cooling-but-rally-in-crypto-stocks-may-not-last/" target="_blank" rel="noreferrer noopener">latest</a> Consumer Price Index (CPI) report, may suggest that inflation is cooling. The Fed’s preferred measurement of inflation, the Personal Consumption Expenditures price index, which was released Friday ahead of Powell’s remarks, also shows easing prices in July. The year-over-year change for July came in at 6.3%, down from 6.8% in June.&nbsp;



Still, Powell <a href="https://cms.blockworks.co/cryptos-equities-slide-as-traders-unpack-powells-jackson-hole-remarks/" target="_blank" rel="noreferrer noopener">warned Friday</a> there is still a long way to go before sustained price stability is reached.&nbsp;



“Estimates of longer-run neutral are not a place to pause or stop,” Powell said during his speech on the second day of the <a href="https://www.kansascityfed.org/research/jackson-hole-economic-symposium/" target="_blank" rel="noreferrer noopener">Economic Policy Symposium</a>, hosted by the Kansas City Federal Reserve. “Our decision at that September meeting will depend on the totality of the incoming data and the evolving outlook,” he said.



Futures markets now are calling for a 60.5% chance of a 75 basis point rate hike in September, which would mark the central bank’s third consecutive increase of that size, according to <a href="https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html" target="_blank" rel="noreferrer noopener">data</a> from CME Group.



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Bitcoin Trading Like Big Tech as Markets Reel

Jocelyn Yang

<div id="highlights-block_62c4c44dbc196" class="highlights">
 <ul>
 <li>BTC rose 4.3% Tuesday after a flat long weekend while ETH went up by 3.7%</li>
 <li>Oil prices hit after West Texas Intermediate crude oil futures dipped below $100 per barrel Tuesday morning</li>
 </ul>
 
</div>



After a relatively flat holiday weekend in the US, the top cryptocurrencies rebounded, if ever so slightly, Tuesday.&nbsp;



Bitcoin (BTC) climbed to over $20,300 by early morning trading — after holding its ground by fluctuating between the relatively narrow band of $19,000 to $20,000 since moving into July. BTC continued its rise, gaining 4.3% over the past 24 hours to around $20,600 as of 4:10 pm ET. Ethereum (ETH) ticked up about 3.7% to $1,160.&nbsp;


[stock_market_widget type=&#8221;accordion&#8221; template=&#8221;chart&#8221; color=&#8221;#8333CD&#8221; assets=&#8221;BTC-USD&#8221; start_expanded=&#8221;true&#8221; display_currency_symbol=&#8221;true&#8221; api=&#8221;yf&#8221; chart_range=&#8221;5d&#8221; chart_interval=&#8221;1h&#8221;]



Wrapping up the second quarter last Thursday, the crypto market’s drop in June was the worst month since it was made available on exchanges in 2010.&nbsp;BTC’s value dropped more than 38% for the month, and ETH’s market capitalization fell by 47%, CNBC <a href="https://www.cnbc.com/2022/06/30/bitcoin-just-had-its-worst-month-in-more-than-a-year.html" target="_blank" rel="noreferrer noopener">reported</a>. The slide followed <a href="https://cms.blockworks.co/luna-crash-has-etp-issuers-sweating-their-exposure/" target="_blank" rel="noreferrer noopener">Luna’s collapse</a> in May and crypto lending platform <a href="https://cms.blockworks.co/celsius-withdrawal-halt-reveals-run-risks-on-other-crypto-banks/" target="_blank" rel="noreferrer noopener">Celsius’ crisis</a> that led to a broad sell-off in the space.&nbsp;



Traditional markets also had a rough time. The six months through last Thursday were the US stock market’s worst first half of a year since 1970.&nbsp;



Concerns about inflation continued to put pressure on the benchmark Dow, which closed down 0.42% Tuesday. The broader S&amp;P 500 index closed 0.16% higher, though, and the tech-heavy Nasdaq climbed 1.75% with the outperformance of video game software development company Unity Software&#8217;s shares going up 12.9% higher as of market close.&nbsp;


[stock_market_widget type=&#8221;accordion&#8221; template=&#8221;chart&#8221; color=&#8221;#8333CD&#8221; assets=&#8221;^GSPC&#8221; start_expanded=&#8221;true&#8221; display_currency_symbol=&#8221;true&#8221; api=&#8221;yf&#8221; chart_range=&#8221;5d&#8221; chart_interval=&#8221;1h&#8221;]



Oil prices have seen a significant drop after <a href="https://www.reuters.com/business/energy/brent-up-strike-norway-threatens-disrupt-oil-gas-output-2022-07-05/">West Texas Intermediate</a> crude oil futures dipped below $100 per barrel Tuesday morning. Based on reporting from the G7 summit held in Germany last week, some officials <a href="https://www.axios.com/2022/07/05/biden-russia-oil-price-economy">think</a> President Joe Biden&#8217;s plan allowing Russian oil to trade under a price cap could be used as a source of leverage to prevent price surges.&nbsp;



As major cryptos, such as bitcoin, have become a more mature global macroeconomic asset, it also pointed to a higher correlation with broader equity markets, Tom Dunleavy, senior research analyst at Messari, told Blockworks.&nbsp;



“Continued monetary tightening, coupled with no immediate signs of reprieve on the inflation front, is hurting all risk assets. Crypto still trades like a high beta risk asset,” Dunleavy said.&nbsp;



In the wake of the Covid-19 omicron variant surge, the economy this year took a hit from the energy crisis after Russia’s invasion of Ukraine. Gas and food prices have risen significantly, and inflation has hit a 40-year high. Now, investors are watching for another possible Federal Reserve interest rate hike that many are concerned could tip the US economy into recession.&nbsp;



Craig Erlam, senior market analyst at OANDA, <a href="https://marketpulse-europe-commentary.prezly.com/ending-a-bad-month-in-the-red" target="_blank" rel="noreferrer noopener">wrote</a> in a note last Thursday, that the US economy is among the best positioned to “fend off a recession but it&#8217;s not completely immune to the cost-of-living crisis. It may be catching up.”&nbsp;



<h3 class="wp-block-heading">Top Stories</h3>



<a href="https://cms.blockworks.co/investors-waiting-deploy-vast-stablecoin-reserves-analysts-say/" target="_blank" rel="noreferrer noopener">Investors Waiting To Deploy Vast Stablecoin Reserves, Analysts Say</a>



<ul class="wp-block-list"><li>Despite the unstable market condition, some digital asset investment management firms still think opportunistic investors stand ready to allocate their capital.</li><li>Digital Asset Investment Management’s research shows that crypto’s four largest stablecoins —&nbsp;Tether’s USDT, Circle’s USDC, Binance’s BUSD, and MarkerDAO’s DAI — by market capitalization have since grown considerably over a two-year period.</li><li>Australian-based digital asset manager and custodian Zerocap told Blockworks that the circulating supply of the top four stablecoins increased by 12.6%.</li></ul>



<a href="https://cms.blockworks.co/nexo-offers-to-acquire-another-struggling-crypto-lender-in-vauld/" target="_blank" rel="noreferrer noopener">Nexo Offers To Acquire Another Struggling Crypto Lender in Vauld</a>



<ul class="wp-block-list"><li>London-based cryptocurrency lender Nexo has signed a term sheet with Coinbase-backed digital assets platform Vauld, outlining its plan to acquire the firm&#8217;s assets.&nbsp;</li><li>“Upon successful completion of the transaction, Nexo plans to acquire up to 100% of Vauld and reorganize its future operations with the aim to accelerate its deeper presence in Asia,” Nexo said in a statement on Tuesday.&nbsp;</li><li>The firm has a 60-day exploratory period related to its intended acquisition, according to the agreement.&nbsp;</li></ul>



<a href="https://cms.blockworks.co/crypto-etps-saw-abysmal-returns-in-june/" target="_blank" rel="noreferrer noopener">Crypto ETPs Saw ‘Abysmal’ Returns in June</a>



<ul class="wp-block-list"><li>Four Europe-domiciled exchange-traded products by 21Shares had a total return below -40%. 21Shares Aave ETP had the highest negative returns in Europe in June, yielding -52.6% according to Morningstar data.</li><li>US ETFs have also taken a hit: Seven of the 15 worst-performing funds in June were crypto funds, according to Morningstar.</li></ul>



<h3 class="wp-block-heading">Going forward</h3>



Entering the second half of 2022, what does it mean for crypto markets? Dunleavy thinks it’s worth watching how inflation impacts the bottom line for companies.&nbsp;



“Right now, price to earnings ratios on the broader indexes are in line with historic averages. If earnings miss, the indexes should meaningfully rerate lower, which should also drag crypto down,” Dunleavy said.&nbsp;



“Analysts have historically been too optimistic on earnings, particularly during recessions.&nbsp; That seems to be the case again with earnings being revised downward.”



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



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Market Wrap: Bitcoin, ETH Rise After Wrapping Up Worst Month

David Canellis

<div id="highlights-block_627439cada755" class="highlights">
 <ul>
 <li>Crypto markets lost $140 billion after market sentiment turned sour on jitters surrounding the Federal Reserve’s latest efforts to control inflation</li>
 <li>Bitcoin tanked 10% to notch its second-largest intraday fall this year and traded at its lowest point in four months</li>
 </ul>
 
</div>



Bitcoin recorded its worst daily drop in four months on Thursday, dropping almost 10% to lows not seen since January.



The top cryptocurrency by market capitalization started the day at $39,727, but by mid-afternoon ET slid below $36,000, according to <a href="https://coinmarketcap.com" target="_blank" rel="noreferrer noopener">CoinMarketCap</a> data.



Bitcoin has plummeted this much in a single day on just one other occasion this year. On January 21, BTC opened at $40,699 but gradually dropped 12% to trade below $35,800 by the end of the day.



The rest of the crypto market followed suit. Ether lost about 7%, while Solana was the worst hit of the top 10 digital assets, losing 15%.&nbsp;



Cryptocurrencies overall shed 7.5%, or $140 billion — from $1.9 trillion to $1.76 trillion, marking the market’s lowest capitalization since February.  



Weak crypto echoed sentiment across equities. During intraday trading, the Dow gave up 3.5%; the S&amp;P 500 fell 5%; and the NASDAQ lost 5.5%. On the other hand, 10-year Treasury bond yields jumped 3.1%.



The losses came despite general market enthusiasm Wednesday, when both the S&amp;P and NASDAQ jumped about 3%.&nbsp;



Analysts figured the widespread relief rally showed confidence in Federal Reserve Chair Jerome Powell’s ability to taper inflation without triggering a recession.



Powell had pledged to not hike the benchmark interest rate by 0.75% in the immediate future, instead re-affirming his 50-basis point strategy. 



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.

markets wrap