Bitcoin & Crypto | Monetary Policy & Inflation | US
The SEC’s crackdown on crypto staking programmes has been the big news this week. Specifically, the SEC action against (centralised) crypto exchange Kraken, will see the exchange end its crypto staking programme in the US as well forking out a $30mn settlement with the SEC.
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The SEC’s crackdown on crypto staking programmes has been the big news this week. Specifically, the SEC action against (centralised) crypto exchange Kraken, will see the exchange end its crypto staking programme in the US as well forking out a $30mn settlement with the SEC. The move from the SEC has weighed on the crypto markets over the past 24 hours with many tokens experiencing their worst daily performance of the year. Notably, it paints a potentially bleak outlook for proof-of-stake (PoS) based blockchain tokens, including Ethereum.
The SEC dubbed the enforcement action as ‘another step in protecting retail investors’, but SEC commissioner Hester Peirce publicly rebuked the agency implying that a ‘paternalistic and lazy’ regulator settles for such a solution. She also raised concerns around the fact that the SEC’s solution to a registration violation for a program ‘that has served people well’ was to shut it down entirely. Most notably, though, Peirce argued that emerging industries such as crypto should be regulated in a fair and efficient manner and that ‘using enforcement actions to tell people what the law is’ does not fit into that mould. Coinbase CEO, Brian Armstrong, agreed with the comments.
Bitcoin and Ethereum are currently trading at $21,800 (-7% WoW) and $1,550 (-6% WoW), respectively.
Performance of Our Indices
Our crypto indices are all in the red this week with our Smart Contract index down the most (-10% WoW) while all other indices are down between 4% and 8% each (Charts 1 and 2). Despite this week’s downturn, rebasing all the indices to the start of 2023 reveals that that our Metaverse index is up the most (+89% YTD) and our Privacy index is up the least (+30% YTD).
Our Smart Contract (+86%), DeFi (+85%), and Metaverse (+81%) indices are most correlated to bitcoin, while our Privacy (+71%) index is least correlated to bitcoin (Chart 3).
On macro markets, Bitcoin’s positive correlation to the S&P 500 (+3%, last month: +38%, Chart 4) and the NASDAQ (+15%, last month: +40%) have reduced significantly. Meanwhile, it’s positive correlation to oil (+28%, last month: +22%), and gold (+28%, last month: +16%) have both increased. Lastly, Bitcoin remains negatively correlated to US 10Y yields (-21%, last month: -63%).
- Smart Contract Platform Index: Fantom (FTM) is down the most (-26% WoW) while Chainlink (LINK) is down the least (-2% WoW). Ethereum (ETH) is down -6% WoW.
- DeFi Index: Loopring (LRC) is down the most (-19% WoW) while Maker (MKR) is the only coin that is up (+6% WoW).
- Metaverse Index: Gala (GALA) is down the most (-18% WoW) while RedFox Labs (RFOX) is the only coin that is up (+6% WoW).
- Privacy Index: Keep Network (KEEP) is down the most (-19% WoW) while Decred (DCR) is the only coin that is up (+4% WoW).
- Bitcoin: this is down -7% WoW.
What Are in the Four Indices?
Here are the indices in more detail:
- Bitcoin: the OG of crypto markets deserves its own category and is in many ways the true benchmark for any other crypto market.
- Smart contract platforms: after bitcoin, the big innovation was to have blockchains that were more programmable. These could host smart contracts or decentralised applications and have allowed the emergence of the metaverse and defi. Ethereum (ETH) is the most popular version of a smart contract platform. As well as ethereum, we also include some key competitors. The constituents of this index are: Ethereum (ETH), Cardano (ADA), Avalanche (AVAX), Solana (SOL), Fantom (FTM), VeChain (VET), Terra (LUNA), EOS (EOS), and Chainlink (LINK). We also include Polkadot (DOT) which allows interoperability between blockchains and the use of smart contracts via parachains.
- Metaverse: coins associated with the creation of a virtual space/digital world on the internet using a combination of augmented reality, virtual reality, and social networks. The constituents of this index are Axie Infinity (AXS), The Sandbox (SAND), Decentraland (MANA), Enjin Coin (ENJ), Aavegotchi (GHST), Terra Virtua Kolect (TVK), Ultra (UOS), Phantasma (SOUL), RedFOX Labs (RFOX), and Gala (GALA).
- Decentralised Finance (DeFi): financial services built on top of blockchain networks with no central intermediaries. This can be a broad category, so we narrow this down to platforms that focus on lending/borrowing, yield farming, automated market making and decentralised exchange tokens. The constituents of this index are: Aave (AAVE), Compound (COMP), Uniswap (UNI), Yearn.finance (YFI), Loopring (LRC), PancakeSwap (CAKE), Maker (MKR), 1inch (1INCH), Thorchain (RUNE), and Terra (LUNA).
- Privacy Coins: coins that obscure transactions on the blockchain to maintain the anonymity of its users and their activity. The constituents of this index are Monero (XMR), Zcash (ZEC), Dash (DASH), Verge (XVG), Horizen (ZEN), Beam (BEAM), Secret (SCRT), Decred (DCR), Keep Network (KEEP), and Dusk Network (DUSK).
Dalvir Mandara is a Quantitative Researcher at Macro Hive. Dalvir has a BSc Mathematics and Computer Science and an MSc Mathematical Finance both from the University of Birmingham. His areas of interest are in the applications of machine learning, deep learning and alternative data for predictive modelling of financial markets.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)
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