Yahoo Finance Crypto on pace to outperform S&P 500 for Q3
After plummeting in value in the first and second quarters, cryptocurrencies in aggregate are holding out better than the S&P 500 index (^GSPC) and bonds and remain on par with the Nasdaq from July 1 to the final week of the third quarter.
"Chaos in fiat currencies is starting to make crypto look more attractive," Oanda senior market analyst, Edward Moya, said in a Monday note. "Bitcoin’s modest weakness is rather impressive given the panic selling occurring across a wide range of risky assets."
Swinging between a high of as much as $1.18 trillion and low of $871 billion for the period, the total market capitalization for crypto assets currently stands at $931 billion (+6.3%) as of Monday morning, according to Coinmarketcap.
Currently trading around $19,000 per coin, the largest cryptocurrency is little changed (-1%) at the start of the third quarter's final week.
The quarterly performance follows worse crypto losses compared with other asset classes for the first half of the year, stemming not only from inflation fears and central bank decision-making, but also a high degree of leverage and poor risk compliance from a number of major crypto firms.
Hours after the Federal Reserve said it would hike interest rates by another 75 basis points last Wednesday, bitcoin (BTC-USD) briefly fell as much as 6.8% to $18,290 — its lowest level since June. But over the last five days, it gained 2% and down 1% since July 1.
For the same period, the Nasdaq Composite (^IXIC), which has shown only half the loss in value as bitcoin so far this year, has sold off by half a percent and trades below 1.8% its July 1 value.
The monthly inflation data report and monetary policy events such as the Fed action last week have heightened the correlation between crypto and equities.
The effect can be seen in the 30-day correlation change between ether (ETH-USD), fresh off a rally leading up to its Merge upgrade, and $QQQ, a popular ETF that tracks the Nasdaq 100, according to Fundstrat digital asset strategist Sean Farrell in a Friday note.
The second largest cryptocurrency, ether (ETH-USD) is changing hands above $1,300, up more than 3% from $1,263 per coin over the past five days, an increase of more than 25% for Q3 so far.
Because crypto is largely higher risk than stocks, it often reaches near-term bottoms and peaks first, Farrell added.
“This relative strength could signify that we could see a relief rally of sorts [for stocks] starting in the next couple of weeks,” Farrell said.
The S&P 500 looks slightly worse since July 1, falling more than 3%, but year to date, it's performing better than crypto and the Nasdaq.
Global bond markets have also felt selling pressure this quarter. On Friday, Bank of America strategists said worldwide government bond markets are on pace for their worst year since 1949.
Both other currencies and risk assets are losing value against the U.S. dollar with Yahoo Finance's U.S. dollar index (DX-Y.NYB) up 3.5% in the last five days and up nearly 8.5% since the beginning of July.
At the very least, crypto's near-term performance speaks to the "lack of leverage" in the market compared with the first half of 2022, according to Farrell.
"It is not unreasonable to speculate that if we had experienced the price action we saw the past two weeks back in Q1 or Q2, there would be cascading liquidations throughout the crypto market, exacerbating any drawdowns," he said.
Looking ahead, crypto market watchers should be mindful of Friday, when end-of-month and quarter options expire, according to crypto prime broker Genesis.
The telltale moment may not prove as notable for bitcoin.
According to crypto options aggregator, Coinglass, open interest for bitcoin options contracts has increased from $4.2 billion to $5.4 billion since the third quarter’s start, yet still sit at roughly half the levels seen in the first and second quarters.
On the other hand, Ether options open interest has risen by $3.8 billion to $6.59 billion, a level not seen since 2021.
Despite stronger macro forces at work in the crypto markets, Fundstrat's Farrell also offered a glimmer of hope around bitcoin's seasonality. Historically, bitcoin’s median return in October is 28% with the largest cryptocurrency showing just two instances of negative Octobers.
“Granted the last took place during the 2018 bear market,” he added.
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David Hollerith is a senior reporter at Yahoo Finance covering the cryptocurrency and stock markets. Follow him on Twitter at @DsHollers
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