Week in Review: Volatility Shifts from Cryptocurrencies to Stocks as Selloff Deepens
Cryptocurrencies have weathered yet another turbulent week in global finance, as stocks, bonds and currencies resumed their volatile trading patterns. The digital asset class led by bitcoin has proven immune to the cocktail of forces dragging down global equity prices. It remains to be seen whether this unique price independence will make digital assets a more trusted safe haven in the future.
In the meantime, U.S. stocks have entered correction territory, Chinese stocks are in a bear market and rising bond yields are making it more difficult to justify risk-on behavior.
Bakkt: Circle Your Calendars
After much anticipation, the Intercontinental Exchange (ICE) has finally announced a date for its forthcoming cryptocurrency trading platform. Bakkt will launch on Dec. 12, giving traders access to physical bitcoin futures contracts. The new product is called the Bitcoin (USD) Daily Futures Contract, and will quote prices to two decimal places.
Crypto markets were largely unaffected by the news, just as they shrugged off the initial Bakkt announcement during the summer. The crypto market capitalization this week fluctuated between $207 billion and $212 billion, with trade volumes falling 15% over that stretch. Bitcoin’s daily trade volumes haven fallen to the lowest level of the year, with a closely-watched volatility tracker approaching fresh 18-month lows.
XRP was in the news this week after the New York Financial Services Department granted Coinbase the right to custody the digital asset. Nexo, a crypto lending platform, also announced it will start accepting XRP as collateral on all loans. The XRP price peaked at two-week highs Tuesday before backtracking in later sessions.
Stocks Extend Selloff
Global equity markets experienced another massive selloff this week, as concerns over economic growth and corporate earnings pushed investors into risk-off mode. Wall Street was at the center of the storm, with the S&P 500 and Dow Jones erasing gains for the year. The technology-driven Nasdaq Composite Index plunged 4.4% on Wednesday, its biggest single-day drop since 2011.
Although markets recovered on Thursday, the gains weren’t enough to offset the midweek slump. Markets were on track for another huge loss on Friday as volatility approached new eight-month highs.
Chinese stocks extended their slide at the end of the week, with the Shanghai Composite Index and Hang Seng Index finishing lower. The Shanghai benchmark is down nearly 22% this year.
As the International Monetary Fund (IMF) recently warned, the global economy is bracing for a broad pullback as China and the United States engage in a bitter trade dispute. The tariff war will reduce global growth by at least 0.2 percentage point in the next two years, with much of the impact concentrated in the two largest economies. However, China’s economic cooldown is occurring even faster than expected, as demonstrated by the latest GDP reading. Last week, Beijing reported an annualized growth rate of 6.5% in the third quarter, the slowest since the financial crisis.
Despite the gloomy forecast, the U.S. economy appears to be growing above-trend under President Trump. On Friday, the Commerce Department reported that consumer spending powered the U.S. economy to an annual growth rate of 3.5% last quarter. Analysts surveyed by The Wall Street Journal projected annual growth of 3.4%.
President Trump and Chinese counterpart Xi Jinping are expected to meet in November at the Group of 20 Summit in Buenos Aires, Argentina. The South China Morning Post reports that both sides have resumed working dialogue after months of silence, a sign that negotiations have resumed.
The Week Ahead
Cryptocurrencies continue searching for their next major trading catalyst. As we’ve seen before, a prolonged period of lateral moves is usually accompanied by a sharp dip in prices. Speculators should therefore brace for a sudden downshift if trade volumes remain low and upside remains capped.
Corporate earnings, monetary policy and U.S. nonfarm payrolls will all be in the headlines next week. The start of November is usually associated with the best six-month stretch for U.S. equities. The so-called “Halloween Indicator” tells traders to buy equities after Oct. 31 and hold them until May for maximum returns. It remains to be seen whether this historical bellwether applies to the current climate.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.