Factor Friday - July 10, 2026

Relief Rally Extends as Less Liquid Tokens Catch a Bid

For the week ending July 9, the Market gained +2.27%, its second consecutive weekly advance following the prior week's +5.22% rebound. This week the rally broadened modestly beyond pure beta: Liquidity was the leading style factor at +1.51%, meaning less liquid assets outperformed their more liquid peers, while Size finished roughly flat at +0.12%. The rest of the style field slipped, with Momentum (-0.71%), Value (-0.79%), Downside Beta (-1.10%), and Growth (-1.37%) all lower. Over four weeks, Value still leads at +2.52% and Liquidity has turned positive at +1.35%, against a Market down -5.48%. Year-to-date, Size (+3.62%) remains the only meaningfully positive style factor while the Market has lost -37.32%. The takeaway for investors is that risk appetite is creeping back in: after a beta-only bounce last week, capital is now reaching into thinner, less liquid corners of the market, while the defensive tilts that cushioned the drawdown continue to give back ground.

Rolling Factor Rankings and Rotation

The quilt chart shows the Market holding the top of the weekly table at +2.27% and leading month-to-date at +7.73%, confirming that July so far belongs to beta. The more interesting move is Liquidity, which climbed to second on the week at +1.51% and sits second for July at +1.24% - a sharp character change for a factor that ranked near the bottom of the June table at -3.01% and remains the worst style factor year-to-date at -9.02%. Value slipped from second to fifth at -0.79%, its first weekly decline after two consecutive positive weeks, though it remains the four-week style leader at +2.52%. Size, June's top-ranked factor at +3.37%, idled mid-pack at +0.12%. Growth sits at the bottom of the style field for a second straight week at -1.37%, extending its fade since topping the May rankings, and Downside Beta gave back ground again at -1.10% as defensive positioning continued to unwind into the rally. The two-week pattern is consistent: the factors that protected capital during the June drawdown are retreating while beta and illiquidity - the classic risk-on pair - lead. Value's pause this week bears watching, but one down week against a positive four-week trend does not yet break its run.

Market and Key Factor Betas

Market Beta

The composition of market-beta exposure was essentially unchanged this week, with no entries or exits at either end of the list. The high-beta cohort remains concentrated in meme coins, layer-2 and interoperability tokens, and AI-infrastructure names, with the same cross-chain messaging token holding the top of the list at a beta near 2.0. At the defensive end, Bitcoin sits near 0.89 and a large-cap governance token anchors the bottom below 0.7, with older payment and smart-contract chains filling out the low-beta group. With the Market factor up +2.27%, the high-beta cohort extended its gains for a second week, though these are the same names still nursing the deepest year-to-date drawdowns. The stability of both lists suggests the market's risk structure is settling after the June turbulence.

Liquidity

The high liquidity-beta cohort - the assets that benefit most when less liquid names outperform - is led by a derivatives-exchange token whose beta moderated notably this week, alongside political meme tokens, layer-2 names, and gaming and metaverse assets. A blue-chip DeFi token entered the top 10 this week as a gaming token exited, a sign that even established protocols are picking up sensitivity to the illiquidity premium. The low liquidity-beta group remains anchored by an older smart-contract chain with a deeply negative beta, joined by meme coins, AI-compute names, and legacy payment networks. With the Liquidity factor returning +1.51% on the week - its best showing in a month - thinner, less liquid assets outperformed, the classic signature of returning risk appetite. The factor remains deeply negative year-to-date at -9.02%, so this week's move is a countertrend signal worth monitoring rather than an established regime change.

Value

High value-beta assets continue to cluster in storage and compute networks, launchpad tokens, blue-chip DeFi protocols, and AI names - protocols generating meaningful economic output relative to their market capitalizations. The top 10 saw no entries or exits this week, with betas drifting slightly lower across the board. The more notable move came at the other end: the cross-chain messaging token that tops the market-beta list saw its value beta deepen sharply to become the most negative in the universe, cementing its profile as the market's clearest example of high beta with low fundamental backing. Meme and governance tokens fill out the rest of the low-value cohort. Value returned -0.79% on the week, its first decline in three weeks, but it remains the four-week style leader at +2.52%. A one-week pause during a liquidity-led rally is consistent with history: fundamental valuation tends to lag when risk appetite runs hot.

What Factors are Driving Markets

Factor contributions across the CF DACS Sectors universe sum to roughly +4.1% over the trailing 30 days, while the Sectors index fell -4.5% over the same window, a gap of about 9 percentage points - down from roughly 19 points last week as the index continued to recover. Downside Beta remained the dominant contributor at +2.5% and Momentum added +1.5%, while Growth extended its role as the largest drag at -1.3%. Systematic factor tilts are still preserving value relative to passive Sectors exposure, but the gap has now narrowed for two consecutive weeks as the rebound lifts the index faster than the factor sleeve.

In the CF DACS Services universe, factor contributions total approximately +1.4% over 30 days against a Services index return of +0.4%, a gap of roughly 1 percentage point - a dramatic compression from last week's 14 points and the first time in weeks the index itself has turned positive over the trailing window. Downside Beta led contributions at +1.5% with Size adding +1.0%, while Growth was again the largest drag at -1.5%. Factor-driven performance still exceeds passive index returns, but only barely: the recovery has broadened enough that passive Services exposure is no longer being left behind by the factor sleeve.

The Settlement universe, dominated by Bitcoin and core settlement-layer assets, flipped the script this week. Factor contributions net to roughly -0.1% over the trailing 30 days while the Settlement index gained +3.7%, meaning passive index performance exceeded factor contributions by about 4 percentage points - the first universe where the index has outrun the factor sleeve since the drawdown began. The negligible factor contribution again confirms that settlement-layer assets are driven primarily by broad market forces rather than cross-sectional style dispersion. Settlement remains a macro story, and with the macro tailwind now positive, passive exposure here has been rewarded.

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