BTC and Equities Correlate, Altcoins Resilient, Says Bitfinex

According to Bitfinex Alpha’s recent report, Bitcoin (BTC) maintains a strong tie with traditional equity markets, especially the S&P 500, while altcoins are showcasing resilience.

Bitcoin’s Downward Movement

During the first week of September, Bitcoin saw a significant drop of 10.7%. This marked a continuation of the declining trend that started in late August, pushing its price below the crucial level of $56,711, which had previously resulted in quick recoveries. The resulting sell-off led to a decrease in leveraged positions, suggesting the market may be approaching a local bottom.

Nonetheless, the report indicates that Bitcoin’s short-term direction is still greatly affected by US equity market movements. The S&P 500 reported its worst weekly performance since March 2023, underscoring the enduring connection between Bitcoin values and the traditional financial sector. Additionally, since August 27th, there has been a net outflow of $706.1 million from Bitcoin ETFs, reflecting traditional finance investors’ attempts to minimize exposure to cryptocurrencies.

Altcoins Shine

In contrast, altcoin markets display strength despite Bitcoin’s downturn. Bitcoin’s dominance—measured by BTC’s market capitalization versus that of the overall crypto market—fell by 1.3%. In contrast, the total market cap of all other cryptocurrencies, excluding the top 10, grew by 4.4%. This trend indicates that investors are seeking potential value in altcoins, moving away from the usual inclination to invest in Bitcoin during declines.

Despite this strength, altcoin open interest has seen a 55% drop from its peak, indicating a lack of speculative interest and possible seller fatigue. The ETH/BTC ratio, a benchmark for the altcoin market, remains below its 365-day Simple Moving Average, highlighting Ethereum’s general underperformance since the Merge.

However, if Bitcoin dominance has indeed peaked, the coming months could usher in a phase of altcoin outperformance, potentially setting up a bullish fourth quarter if macroeconomic pressures lessen.

Macroeconomic Factors

The primary trigger for last week’s downturn was the US labor market report for August, which indicated only modest growth. This report may provide the Federal Reserve with some comfort as they consider a shift towards reducing interest rates. Employment figures rose less than expected, although the unemployment rate fell from 4.3% to 4.2% in July.

In the manufacturing sector, signs of continued contraction for the fifth consecutive month emerged, driven by weak demand. This supports the argument for rate cuts. Companies are scaling back production to safeguard profit margins, reflecting a broader slowdown in economic activity.

The construction sector is also exhibiting signs of pressure. The US Commerce Department’s Census Bureau recorded a 0.3% drop in construction spending in July, following no change in June. This decline reflects a wider slowdown in the housing market as affordability decreases and the post-pandemic housing boom wanes.

Other Developments

In related news, Japan’s three megabanks—MUFG, SMBC, and Mizuho—are initiating “Project Pax,” a pilot program utilizing blockchain-based stablecoins for cross-border settlements, with commercial rollout expected by 2025. The initiative will incorporate SWIFT’s API framework to enhance compliance and efficiency.

Meanwhile, the Federal Reserve has issued a cease-and-desist order against United Texas Bank due to deficiencies in its risk management and anti-money laundering protocols concerning its cryptocurrency clients. The bank is mandated to enhance its oversight and customer due diligence measures.

For more comprehensive insights, the complete report can be found on Bitfinex.

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