Factor Friday - August 7, 2026

Liquidity Leads as The Market Falls

For the week ending August 6, 2026, the Market returned -0.81%, a step below the flat +0.02% of a week ago. Liquidity led the field at +1.36% and Size took second at +1.07%; both are sign-inverted, so the pair says thinner and smaller names outperformed their liquid, large-cap counterparts. Downside Beta anchored the table at -2.69%, also sign-inverted, meaning the assets that lose most in drawdowns beat the resilient cohort. Momentum surrendered its two-week leadership and fell to sixth at -0.99%, Growth reversed from +1.74% to -0.74%, and Value climbed off the bottom to -0.57% after two consecutive weeks in last place. Over four weeks the picture is different again: the Market is now up +3.18%, up from +0.48% a week ago as a weak week rolled out of the window, with Momentum at +2.23%, Growth +0.78%, Liquidity +0.36%, Size -0.15%, Downside Beta -1.32%, and Value -2.56%. Year-to-date, Size (+3.96%) remains the only style factor in positive territory, Liquidity (-9.11%) is still the weakest, and the Market stands at -36.45%.

Rolling Factor Rankings and Rotation

Liquidity took the top spot for the fifth time in 2026's thirty-two completed Thursday weeks, and last week's leader went the other way. Momentum, whose two-week run was the first back-to-back style leadership since Growth's in late May, fell from +1.96% to -0.99% and sixth place, keeping intact this year's pattern of leadership that rarely survives contact with a new week. The August month-to-date column is only four sessions old and already disagrees with the weekly ranking: the Market factor sits on top at +1.99%, Liquidity second at +1.39%, and Size third at +0.85%, while Value (-1.95%), Downside Beta (-1.90%), and Growth (-1.75%) fill the bottom. July closed with the Market at +7.09% and Momentum second at +2.02%, so the monthly sequence of Growth in May, Size in June, and the Market in July has now handed August's early lead back to beta even as the weekly data points elsewhere. Beneath the ranking, Liquidity's own behaviour deserves a caveat: it has changed sign five times in the past eight weeks and carries a 1.34% weekly standard deviation this year, so a single strong print is thin evidence of anything. This week does mark its second consecutive positive reading, the first such pairing in that eight-week stretch. Downside Beta took last place for the fourth time this year, and at -2.69% this was its third-worst week of 2026. Only Growth and Momentum have ever repeated as weekly leader among the style factors in 2026, so the base case is that this ranking does not hold.

Market and Key Factor Betas

Market Beta

Market-beta composition has now gone three consecutive weeks without a single entry or exit at either end, with only trivial reordering inside the lists. The high-beta cohort stays concentrated in a cross-chain messaging token near the top at 1.82, liquid staking, meme coins, layer-2 and scaling names, and a modular data-availability token. At the defensive end a governance token anchors the list below 0.70, Bitcoin (BTC) sits near 0.88, and enterprise interoperability and legacy payment chains fill out the rest alongside two older smart-contract platforms. With the Market factor at -0.81%, that high-beta exposure cost money rather than earned it. The four-week reading of +3.18% is better treated as an artifact than a trend, since it improved only because a weak week dropped out of the window while the current week was negative. Three weeks of a frozen list through changing weekly outcomes says positioning in broad beta has not rotated at all; what keeps changing is whether the market pays for it.

Liquidity

Illiquid tokens outperformed this week, and the composition of the factor shows where that bid landed. The high liquidity-beta cohort, the assets whose returns track the illiquidity premium most closely, is led by a perpetuals exchange token at 2.07, followed by a political meme token, layer-2 and scaling names, enterprise interoperability tokens, a gaming asset, and a legacy smart-contract chain. The opposite end is populated by older payment and settlement chains, a major meme coin, an IoT token, and two AI names, with a real-world-asset token entering the bottom 10 as a launchpad token dropped out. Repositioning within the factor was unusually sharp: one legacy layer-1's liquidity score fell 3.21 points in a single week, from marginally positive to deep in the short portfolio, the largest swing in the factor and a sign the market is re-rating which names are genuinely thin. Set against the year, though, this remains a factor that has cost holders 9.11% in 2026 and has strung together three consecutive positive weeks only once, in late January. A book tilted toward illiquidity collected this week and has been penalised for the year. Liquidity has reached two straight positive weeks three times in 2026 counting this one, and only the January run extended to a third, so the base rate says this bid fades before it compounds.

Downside Beta

Defensive positioning was the clearest loser of the week. Downside Beta returned -2.69%, last of seven and its third-worst week of 2026; because the factor is sign-inverted, that print means assets most exposed to drawdowns outperformed the resilient cohort. The high downside-beta-factor cohort, the defensive side of the book, is built from legacy payment and settlement chains, enterprise interoperability, a storage token, and older smart-contract platforms, with one legacy chain sitting at an outlier 4.72 well clear of the rest and a political meme token entering the top 10 as a cross-chain messaging token exited. On the fragile side sit meme coins, a political DeFi token, gaming and IoT names, layer-2s, a synthetic-dollar protocol, and a perpetuals exchange token. Two score moves are worth carrying forward: a major layer-1's downside-beta score dropped 1.13 points further into the short portfolio while a digital-identity token gave back 0.88 points from the long side, both consistent with the market re-rating fragility rather than resilience. Taken with Size and Liquidity, all three sign-inverted factors printed risk-seeking in the same week, a configuration that has occurred five times in thirty-two weeks this year, most recently on June 25 and July 9. Neither of those held into the following week, with two of the three legs flipping each time, so the risk in this setup is reversal, not persistence.

What Factors are Driving Markets

Services flipped the sign of its gap. Factor contributions net to approximately zero over the trailing 30 days against a Services index return of -2.4%, putting factors about 2.4 pp ahead of the index; a week ago the index led factors by 5.5 pp. Factors held flat while the index fell, so the sleeve now sits ahead of the index instead of behind it, and the same disconnect points the other way. Size contributed +0.6% and Downside Beta +0.5%, offset by Value at -0.6% and Growth at -0.5%. Constituent behaviour was narrower than in Sectors: the index fell 1.9% on the week, ZRO rose 6.4% and POL 4.8%, and RENDER lost 6.7%. LINK accounts for 48.5% of the index and fell 3.2%, roughly four fifths of the index move from one constituent. That concentration is why the factor sleeve carries more information here than the index return does, since it describes the seven constituents the headline largely ignores.

Services flipped the sign of its gap. Factor contributions net to approximately zero over the trailing 30 days against a Services index return of -2.4%, putting factors about 2.4 pp ahead of the index; a week ago the index led factors by 5.5 pp. Factors held flat while the index fell, so the sleeve now sits ahead of the index instead of behind it, and the same disconnect points the other way. Size contributed +0.6% and Downside Beta +0.5%, offset by Value at -0.6% and Growth at -0.5%. Constituent behavior was narrower than in Sectors: the index fell 1.9% on the week, ZRO rose 6.4% and POL 4.8%, and RENDER lost 6.7%. LINK accounts for 48.5% of the index and fell 3.2%, roughly four fifths of the index move from one constituent. That concentration is why the factor sleeve carries more information here than the index return does, since it describes the seven constituents the headline largely ignores.

Settlement again registered almost no factor signal at all. Contributions net to essentially zero over the trailing 30 days, with no individual factor moving more than a few hundredths of a percent in either direction, while the Settlement index rose 2.8%. The resulting spread of roughly 2.8 pp is well inside last week's 7.5 pp and continues the compression seen in the other two universes. Bitcoin holds 76.1% of this index and slipped 0.6% against an index return of -0.8% on the week, roughly 60% of the move from one constituent. Dispersion in the tail was real but mostly immaterial: ADA rose 17.8% and ALGO 13.3%, yet at 0.58% and 0.04% of the index they moved nothing, and XLM's 6.8% loss on a 0.31% weight moved less. XRP is the exception, down 4.8% on a 4.8% weight for roughly 30% of the index's weekly move. A Settlement allocation therefore remains a directional Bitcoin position in factor terms, and only a change in the index's weight distribution would alter that.

Appendix: CF Factor Methodology

Market Factor

The market factor captures the broad, systematic risk that permeates the digital asset ecosystem. It reflects aggregate influences such as macroeconomic conditions, investor sentiment, and overall market volatility. As such, this factor is defined by the daily returns of the CF Broad Cap (Free Float Market Cap Weight) Index, offering a comprehensive and capitalization-weighted representation of the asset class.

Size Factor

The size factor captures the return differential associated with asset scale, reflecting the hypothesis that smaller-cap digital assets tend to outperform their larger-cap counterparts. This effect is understood to compensate for elevated operational and financial risks while exploiting potential market inefficiencies. In this framework, the size factor is defined by each asset’s fully diluted market capitalization. The value is sign-inverted so that higher z-scores are assigned to smaller assets and vice-versa.

Value Factor

The value factor reflects a protocol’s ability to generate economic output relative to its capital base and market valuation, combining measures of both efficiency and user engagement. It is constructed as the average z-score of two key ratios: transaction fees relative to total value locked (Fees/TVL) and daily active users relative to market capitalization (DAU/MCap). This composite metric captures how productively a protocol utilizes its resources while also serving as a proxy for user-driven demand. A higher combined score indicates efficient resource utilization and strong user engagement.

Momentum Factor

The momentum factor captures short-term price persistence by identifying assets that have recently exhibited strong performance. It is computed as the average z-score of two metrics: the 2 weeks cumulative performance and the 2 weeks risk-adjusted cumulative performance. This approach aligns with established findings in traditional financial literature and demonstrates empirical relevance in digital assets, where price trends tend to exhibit momentum over short horizons.

Growth Factor

The growth factor captures the expansion of a protocol’s network activity and user adoption. In the context of digital assets, it reflects metrics such as fee generation and user engagement, which serve as indicators of increased platform utilization and operational scale. The factor is defined as the average z-score of 30-day fee growth and 30-day weekly active user growth, thereby identifying assets exhibiting consistent and measurable increases in underlying network usage.

Downside Beta

The downside beta factor captures an asset’s sensitivity to adverse market conditions by isolating its behavior during periods of negative market returns. Empirical evidence shows that assets with lower downside beta tend to outperform their higher-beta counterparts over the long-term, due to their reduced participation in market drawdowns and more stable return profiles during periods of elevated volatility. As such, it is estimated through a regression of the asset’s daily returns over the most recent four-week period against market returns observed exclusively during negative sessions. The resulting value is sign-inverted to ensure that assets with lower downside exposure are assigned higher z-scores.

Liquidity Factor

The liquidity factor captures the ease with which a digital asset can be traded without significantly impacting its price. Empirical evidence shows that illiquid assets tend to command a higher risk premium than their more liquid counterparts, serving as compensation for trading friction and price volatility. To quantify this, the factor is measured using token turnover, defined as trading volume as a percentage of circulating supply. The value is sign-inverted such that higher z-scores are assigned to less liquid assets.

For further detail, view the CF Factors Methodology Document, the CF Factor Data Suite, and Our paper “A Factor Model for Digital Assets” in Springer Nature’s Mathematical Research for Blockchain Economy