The San Francisco Open Exchange (SFOX), an organization that aims to help traders and funds invest in digital assets at “the best price,” notes that its multi-factor market index, which was neutral a month back, has now been updated to “mildly bearish” as of April 8, 2020.
The SFOX team explains that the monthly value of this index is calculated by “using proprietary, quantifiable indicators to analyze five [different cryptocurrency] market factors.” These include price momentum, trading volume, market sentiment, volatility, and the ongoing growth and development of the blockchain industry.
SFOX’s blog states that the index is determined using “a proprietary formula that combines quantified, marketwide data on asset performance, search traffic, blockchain transactions, and more.” The company’s index ranges from “highly bearish” to “highly bullish.”
On April 10, 2020, the outlook index was set at mildly bearish, even though there had been a moderate recovery in Bitcoin’s (BTC) price.
The SFOX blog argues:
“[This] may represent the sustained uncertainty we’ve witnessed in the past month regarding the macroeconomic climate of a COVID-19 world, along with continued debate about the potential impact of the upcoming [Bitcoin] block reward halving (when the cryptocurrency’s supply will be reduced by 50%).”
The SFOX team adds:
“Bitcoin and blockchain-based infrastructure are theoretically poised to potentially help ameliorate some of the issues that come with the new day-to-day reality that the pandemic has brought upon us, but there’s not much by way of historical data to help us understand how this kind of global public health crisis will continue to evolve and impact markets in the coming months.”
The company points out that there’s not enough financial data yet to gain an in-depth understanding of how the crypto asset market will perform in this type of crisis, and this might be concerning for many industry participants.
SFOX’s blog mentions that Bitcoin’s behavior during the onset of the Coronavirus as a global pandemic indicated that it’s performing as “a financial asset and a risk asset” (March 12 — 16, 2020).
As confirmed in SFOX’s report, the onset of the Coronavirus was followed by the largest single-day losses for Bitcoin, the flagship cryptocurrency, and the S&P 500 in more than three years.
The report revealed:
“The correlations between BTC, the S&P 500, and gold also became much more positive than they had been in the previous four and a half months.”
Going on to point out other major trends in capital markets, the SFOX blog notes:
“Leverage was massively unwinding: the week of March 16, $7.3 billion moved out of bond funds and total assets in government money-market funds rose to an all-time-high of $3.09 trillion. At the same time, open interest in Bitcoin, much of which was leveraged, was cut almost in half, decreasing from about $3.75 billion to about $2 billion.”