BTC and ETH keep getting dragged down by the macro uncertainty

September historically  is the worst performing month of the year in most markets.  The last week there was a series of macro events that caught the market by surprise and accelerated the price drop. Those being  the impact over China’s economy of the Evergrande debt default (over $300M), and the FED announcement of a plan to start to pull back the economic stimulus at the end of the year. Inflation rates increments due to an increase in the quantity of circulating money supply are supposedly beneficial to crypto currencies due to their programmable scarcity being ideologically in the opposite pole of it. However in the short-medium term, when equity markets sell off fast, cryptocurrencies go behind it.

These reactions over these news of BTC, ETH and major US indices can be seen in the next 30 day price performance chart. BTC and ETH underperformed with a -13.0% and -9.3% return each in comparison with the -5.4% and -3.7% of Nasdaq and S&P. The only index that performed positively was the US Dollar Index, as it gets reinforced when the US equity markets underperforms and traders’ portfolios flow into cash.


As of September 30, 2021 using IntoTheBlock’s Capital markets Indicators

It would be naive to assume that cryptocurrencies are not affected much by the performance of the main equity markets. Seasoned investors tend to keep an eye on the performance of equity markets as their correlation tends to grow in times of uncertainty. A typical example tends to be the Nasdaq, a day with high volatility and notorious price decreases over the index tends to affect BTC and ETH severely as well. As it is shown in the next chart, they show high correlation levels (>0.8) between them.


As of September 30, 2021 using IntoTheBlock’s Capital markets Indicators


Cryptocurrencies tend to perform better when the traditional equity markets stay relatively calm and steady, but tend to start heavily correlated towards the major US equity indexes when the equity markets start to turn red. A potential  reason for this is due to investors liquidating first their riskiest positions, such as cryptocurrencies are considered. This consideration is usually justified by the measure of indicators like the sharpe ratio or the sortino ratio. These take into account the returns of an asset relative to their risk (or just downward risk in the case of the sortino ratio). As it is shown in the next chart, the 30 day Sortino ratios for Bitcoin and Ethereum are slightly better than US stock indices, but worse than the dollar:


As of September 30, 2021 using IntoTheBlock’s Capital markets Indicators

This  suggests that even in short term periods where the overall market returns are expected to be negative, major crypto currencies such as BTC or ETH can provide a risk-adjusted performance slightly better than other US indices. The price discounts will be correlated and are usually worse with BTC and ETH, but as soon as the equity markets take a breath for a short period of time, BTC and ETH prices tend to bounce up aggressively, recovering fast from the selloffs. Investors take advantage to buy the price dips as the view over cryptocurrencies remains bullish. Its adoption continues to grow as they are perceived as a method of capital preservation since its supply is not affected by inflationary monetary policies. In the end they have been the best performing investment vehicle over the last ten years.

Looking forward, investors that are looking to position themselves considering some key support and resistance levels, can make use of the IntoTheBlock In/Out of the Money Around Price indicator. This indicator shows the asset price divided in several ranges, each of them showing the total number of addresses (as a proxy of investors) that have an average buying cost in that price range. The more addresses that are located in a price range, the higher likelihood that the range can serve as a support or resistance. As can be seen in the figure, the range $41.8k to 43.0k, a considerable amount of addresses are still in the money (in profit). This could reduce the selling pressure if the price would drop until that price range, and potentially serve as support. Looking at a potential resistance level, the same conclusion can be said about the $44.4k to 44.6k level. 


As of September 30, 2021 using IntoTheBlock’s financial Indicators.