Factor Friday - May 29, 2026

Factor Friday: Growth Takes the Lead as the Market Extends its Slide

Digital asset factors split sharply this week as the market's drawdown deepened. The Market factor fell 5.26% on the week, extending a punishing year that now stands at -27.20%, while Growth surged 4.33% to claim clear leadership and lift its year-to-date reading back to roughly flat at -0.32%. The remaining factors clustered near the line: Momentum (+1.06%), Value (+0.63%), and Downside Beta (+0.14%) posted modest gains, while Size (-1.04%) and Liquidity (-2.73%) lagged. Over the trailing four weeks Value (+5.11%) and Growth (+4.55%) remain the standouts, with Market (-8.56%) and Liquidity (-5.35%) the laggards. The takeaway for investors is a decisive rotation toward fundamentally driven names: capital is rewarding network growth and punishing broad beta and less liquid tokens as the tape turns risk-off.

Rolling Factor Rankings and Rotation

Growth tops both the trailing seven-day and month-to-date rankings, a notable change in leadership. As recently as April the board was led by Market and Size; this week Market sits dead last over the trailing seven days and near the bottom month-to-date, underscoring how concentrated the weakness in broad beta has become. Growth's rise to the top follows several weeks in the middle of the pack, and its month-to-date lead over Value is narrow, suggesting the two fundamentally oriented factors are now jointly setting the pace. Downside Beta, which led for stretches earlier in the year, has settled into the middle of the rankings but retains the strongest year-to-date reading at +3.74%, a reminder that lower-sensitivity names have been the most durable store of relative value through the 2026 drawdown. The rotation pattern is consistent: as the market leg lower has intensified, leadership has shifted towards tokens with strong fundamentals.

Market and Key Factor Betas

Market Beta

The Market factor measures broad systematic exposure across the digital asset complex. The high market-beta cohort remains dominated by meme coins, layer-2 and infrastructure tokens, and liquid DeFi names, the assets that amplify moves in both directions. The low-beta cohort is anchored by Bitcoin alongside larger and older-generation tokens that behave more defensively. Composition was stable week over week, but with the Market factor down 5.26% the practical message is that the high-beta basket bore the brunt of the selloff while the defensive basket cushioned it.

Growth

Growth, this week's leader, captures expansion in network activity and user adoption. The high growth-beta cohort skews toward layer-2 scaling tokens, DeFi protocols, and payments-oriented assets, names whose valuations are most sensitive to adoption trends. ARB entered the high-beta list this week, displacing LINK, while the low growth-beta cohort, populated by AI infrastructure and gaming-adjacent tokens plus several large incumbents, saw SOL move in and FIL drop out. With Growth up 4.33%, the high-beta basket delivered the week's strongest factor returns, confirming that adoption-linked names led within an otherwise weak market.

Liquidity

Liquidity is sign-inverted: a positive return means less liquid assets are outperforming. This week's reading of -2.73% therefore signals the opposite, with more liquid assets holding up better as participants favored names they could exit cleanly. The high liquidity-beta cohort spans mid-cap infrastructure and gaming tokens, with POL entering and PEPE exiting, while the low-beta cohort is concentrated in the most heavily traded large- and mid-caps, where XLM replaced SUI. The negative print fits the broader risk-off backdrop: when the market falls and beta is being shed, investors rotate out of less liquid names.

What Factors are Driving Markets

Across all three CF DACS classifications the relationship between factor contributions and index returns inverted this week. A week ago factor contributions trailed surging index returns by wide margins; this week, with indices flat to negative, factor contributions turned positive and now exceed index returns across every category. Growth has also displaced Size as the dominant contributor, mirroring the rotation seen in the headline factor returns.

In Sectors, cumulative factor contributions totaled +3.28% against an index return of -4.09%, a gap of 7.36 percentage points with factor contributions exceeding the index. Growth was the dominant contributor at +3.72%, while Liquidity was the largest drag at -1.77%. This is a stark reversal from last week, when factor contributions trailed the index by roughly 15 percentage points, and it shows the disconnect has not just narrowed but flipped direction.

In Services, factor contributions totaled +5.34% against an index return of +2.40%, a gap of 2.94 percentage points in favor of factor contributions. Growth again led at +4.25%, with Value (+1.17%) and Size (+1.07%) supportive and Downside Beta the largest drag at -0.42%. Services was the only category with a positive index return on the period, and growth-linked exposure did the heavy lifting.

In Settlement, factor contributions were essentially flat at -0.12% against an index return of -3.36%, leaving a gap of 3.24 percentage points with factor contributions ahead of the index. Contributions were muted across the board, with Growth the marginal drag at -0.12% and Liquidity a slight positive. The category continues to show the least factor dispersion of the three, consistent with its concentration in large, established settlement assets.

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