Bitfinex Alpha | BTC is tied to stocks, but alts are outperforming

September 09 Bitfinex Alpha | BTC is tied to stocks, but alts are outperforming

Last week, BTC fell 10.7% in its first week since opening in September, continuing a downward trend that has continued since late August. However, this decline took the price below the critical low of $56,711, which was similarly marked on May 1, a level that had previously triggered a rapid recovery. The sell-off has reduced leveraged positions, indicating that the market is potentially approaching a local low. However, we believe that US stock markets, particularly the S&P 500, which last week posted its worst weekly performance since March 2023, are important to Bitcoin’s short-term trajectory. The correlation between Bitcoin prices and traditional financial markets persists, and the significant spot ETF outflows last week suggest that traditional financial investors are reducing their risk in crypto. In particular, since August 27, there has been a net outflow of $706.1 million from Bitcoin ETFs, and the spot cumulative volume delta has been trending downward, suggesting aggressive spot selling.

Altcoin markets, on the other hand, have been resilient. Bitcoin dominance (BTC’s market cap as a percentage of the overall crypto market) has fallen by 1.3% as the selloff continued last week. In contrast, all other crypto assets (excluding the top 10) have increased by 4.4%. This shift, I dare say, suggests a potential systemic shift, with investors looking for value in altcoins, rather than the typical pattern of rushing to Bitcoin during a recession.

However, altcoin open interest has fallen 55% from its all-time high, indicating speculative disinterest and potential seller fatigue. The ETH/BTC ratio, a proxy for the altcoin market, remains below its 365-day simple moving average, reflecting ETH’s overall underperformance since the merger.

However, if Bitcoin’s dominance has indeed reached a local peak, we could see a period of strong altcoins in the coming months, with a bullish Q4 outlook if macroeconomic pressures ease.

The main catalyst for last week’s selloff was probably the August U.S. labor market report, which showed only modest growth. However, we see this as providing some relief as the Federal Reserve prepares to move toward lowering interest rates. The employment numbers rose less than expected, but the unemployment rate fell to 4.2% from 4.3% in July.

The manufacturing sector showed evidence of sustained contraction for the fifth consecutive month, further supporting the interest rate cut due to weak demand. Companies are cutting production to protect profit margins, reflecting a broader slowdown in economic activity.

The construction sector is also showing signs of strain. The U.S. Census Bureau reported that construction spending fell 0.3% in July, after remaining flat in June. The decline was deeper than expected, as the overall housing market slowed, with lower prices and the waning of the pandemic-era housing boom weighing on sales. Homes are sitting on the market longer, and builders are cautious about starting new projects due to rising inventory and declining demand. Overall, some sectors are showing some improvement, while others are suffering from reduced activity.

Last week in crypto news, Japan’s three megabanks (MUFG, SMBC, Mizuho) launched “Project Pax,” a pilot program to streamline cross-border payments using blockchain-based stablecoins, with a target of commercial launch by 2025. The project integrates SWIFT’s API framework for compliance and efficiency.

Meanwhile, the Federal Reserve has issued a cease and desist order to United Texas Bank due to shortcomings found in its risk management and anti-money laundering practices for cryptocurrency customers. It has ordered the bank to improve its supervision and customer due diligence procedures.

Have a great trading week!