As the summer market lull sets in, traders may find themselves feeling impatient and eager to make up for gains missed earlier in the year. Over the past month, the U.S. equity market has been slowly moving higher, while the crypto market has been sliding backward. Realized volatility across markets has ticked meaningfully lower, with Bitcoin (BTC) seeing annualized realized volatility of about 20%, similar to exchange-traded funds tracking 20-year Treasuries and West Texas Intermediate crude oil. Ether’s (ETH) realized volatility is at about 25%, similar to the equity volatility last year.
Correlations across digital assets and traditional markets have generally decoupled from equities, foreign exchange, and commodities, when compared with the February-to-April period. The strongest correlation to traditional finance is now to fixed-income markets. The CoinDesk Bitcoin and Ether Trend indicators are now at neutral and slightly negative trend values respectively, as we wait for the financial market winds to pick back up.
July and August have been particularly benign months for financial markets over the past five years, said CDI Research. We can also see that both BTC and ETH have different and distinct monthly seasonality volatility patterns from equity and fixed-income markets, as indicated by S&P 500 and U.S. Treasuries ETFs, although July and August lulls are shared across markets.
August typically experiences lower volatility due to reduced trading activity and lower liquidity. However, this seasonal illiquidity can magnify significant moves when they do occur.
As we wait for the winds of the market to pick back up and propel us into another eventful second half of the year, it’s important to consider questions such as: will market leadership and breadth expand in digital assets beyond Bitcoin and Ether and in equities beyond mega-cap artificial-intelligence technology? Have inflationary pressures subsided?