Factor Friday - July 17, 2026

Value Takes the Lead as Liquidity Lags

For the week ending July 16, the Market gained +1.66%, its third consecutive weekly advance, though the pace has decelerated each week from the +5.22% rebound that started the run. Style leadership rotated toward quality: Value led at +0.93%, resuming its advance after last week's pause, and Downside Beta followed at +0.86%, its first weekly gain since the defensive unwind began. Size was flat at +0.05%, Momentum slipped -0.37%, Growth lost -0.75%, and Liquidity fell to the bottom of the table at -1.82%, fully unwinding the illiquidity bid that briefly led the style field a week ago. Over four weeks, Value leads at +2.20% and the Market has turned positive at +0.30%, while Downside Beta (-3.09%) remains the biggest laggard. Year-to-date, Size (+3.67%) is still the only positive style factor, Liquidity (-10.67%) is the weakest, and the Market stands at -36.27%. The takeaway for investors is that the rally is slowing but maturing: capital is consolidating into assets with fundamental output and defensive resilience, while the speculative reach into thinner names that marked early July has reversed in full.

Rolling Factor Rankings and Rotation

The quilt chart shows the Market holding the top of the weekly table for a third straight week at +1.66% and leading July at +9.53%: this remains a beta month, even as the weekly increments shrink. The sharper moves are in the style ranks. Value climbed back to second at +0.93% after slipping to fifth last week, validating the view that one down week against a positive four-week trend did not break its run; it is again the four-week style leader at +2.20% and sits second month-to-date. Liquidity did the opposite, collapsing from second to the bottom of the table at -1.82% and more than retracing last week's +1.51% advance. The illiquidity bid that looked like returning risk appetite now reads as a one-week spasm, and the factor remains the worst style performer year-to-date at -10.67%. Downside Beta rose to third at +0.86%, its first weekly gain after two weeks of giving back ground, a signal that the post-drawdown defensive unwind may have run its course even though it remains the weakest style over four weeks at -3.09%. Momentum flipped negative at -0.37%, Size idled at +0.05% for a third quiet week since topping the June table, and Growth (-0.75%) climbed off the weekly bottom for the first time in three weeks but still anchors the July rankings at -2.96%. The emerging pattern is a narrowing, higher-quality rally: beta and fundamental value lead, defensives have stopped bleeding, and the speculative styles are being repriced.

Market and Key Factor Betas

Market Beta

The composition of market-beta exposure saw one change at each end of the list this week: a layer-2 scaling token entered the top 10 as an AI-rendering name dropped out, and a blue-chip DeFi governance token joined the defensive end as a large-cap meme coin exited. 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 1.9. At the low-beta end, Bitcoin sits near 0.88 and a large-cap governance token anchors the bottom below 0.7, with older payment and smart-contract chains filling out the group; the arrival of an established DeFi protocol in this defensive cohort is a further sign of large-cap fundamentals trading with lower systematic risk. With the Market up +1.66%, the high-beta cohort has compounded three consecutive weekly gains, though at a decelerating pace, and these names still carry the deepest year-to-date drawdowns in the universe.

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. Composition turnover was minimal, with a layer-1 smart-contract platform entering the top 10 as an older interoperability chain exited, while the bottom of the list was unchanged and the cross-chain messaging token that tops the market-beta rankings still carries the most negative value beta in the universe. Performance was the story: Value returned +0.93% to lead all style factors, snapping back from last week's -0.79% pause exactly as the four-week trend suggested it might. With Value extending its four-week leadership at +2.20% in the same week the speculative liquidity trade unwound, the market is rewarding fundamental output even as beta leads, a constructive signal for the durability of the recovery.

Liquidity

The high liquidity-beta cohort, the assets that benefit most when less liquid names outperform, is still led by a HYPE with a beta above 2.3, alongside political meme tokens, layer-2 names, and gaming and metaverse assets; a polygon-ecosystem token entered the top 10 this week as a blue-chip DeFi protocol exited. The low liquidity-beta group remains anchored by an older smart-contract chain with a deeply negative beta, joined by meme coins and legacy payment networks, and saw the most churn of any list this week with a launchpad token and an AI-agent token entering as the cross-chain messaging token and an older compute chain dropped out. That churn matches the performance whipsaw: Liquidity fell -1.82% to the bottom of the style table after leading it at +1.51% a week ago, meaning more liquid assets reasserted leadership decisively. Last week's report flagged the illiquidity rally as a countertrend signal worth monitoring rather than a regime change, and the reversal confirms it: at -10.67% year-to-date, the market's tolerance for thin order books remains structurally low, and it evaporated as quickly as it appeared.

What Factors are Driving Markets

Factor contributions across the CF DACS Sectors universe sum to roughly +1.1% over the trailing 30 days, while the Sectors index fell -9.1% over the same window, a gap of about 10 percentage points, modestly wider than last week's 9. The move is a window effect rather than fresh weakness: the sharp mid-June rebound days have rolled out of the trailing 30-day measurement, dragging the index's cumulative return lower even as the past week was positive. Downside Beta remained the dominant contributor at +2.0% and Momentum added +0.9%, with Size (+0.5%) turning positive, while Growth extended its role as the largest drag at -2.1% and Liquidity (-0.5%) flipped to a detractor. Systematic factor tilts are still preserving value relative to passive Sectors exposure, with factor contribution positive across the full window while the index itself was not.

In the CF DACS Services universe, factor contributions total approximately +0.1% over 30 days against a Services index return of -11.0%, a gap of roughly 11 percentage points. That is a sharp re-widening from last week's 1 point, but the driver is the same window roll seen in Sectors: the mid-June relief bounce, which included several sessions of +5% or more for Services names, has dropped out of the trailing 30 days, pulling the index's cumulative return deeply negative. Downside Beta led contributions at +1.2%, with Size (+0.7%) and Value (+0.6%) also additive, while Growth was again the largest drag at -2.4%. Factor contribution held roughly flat over a window in which passive Services exposure lost 11 percentage points, the widest factor-versus-index spread of the three universes this week.

The Settlement universe, dominated by Bitcoin and core settlement-layer assets, flipped back this week. Factor contributions net to roughly 0.0% over the trailing 30 days while the Settlement index slipped -0.6%, leaving factor contribution about 1 percentage point ahead of the index, a reversal from last week when passive Settlement exposure outran the factor sleeve by roughly 4 points. The near-zero 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: as the trailing window absorbed the tail of the June drawdown, the passive tailwind of a week ago faded, and neither factor tilts nor passive exposure moved much either way.

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