Crypto Index Tracker: All Sectors Plummet After FTX Chaos

The big news this week has been the FTX collapse and subsequent liquidity crunch. Here is a quick overview of how the events unfolded:

• On Wednesday last week (2 November), Coindesk reported that the hedge fund, Alameda Research, owned by FTX CEO, Sam Bankman-Fried (SBF), had much of its $14.6bn in assets in FTT – an exchange token issued by FTX. Bitcoin closed the day around $20,100.
• On Sunday (6 November), Changpeng Zhao (CZ), the CEO of Binance, revealed that they would be liquidating any remaining FTT on their books. Bitcoin closed the day around $20,900.
• On Tuesday (8 November), CZ revealed that Binance signed a non-binding letter of intent to acquire FTX in a bid to help cover the liquidity crunch. He made it clear that the deal would be subject to a full due diligence over the coming days. Bitcoin closed the day around $18,500.
• On Wednesday (9 November), Binance calls off the potential acquisition of FTX, citing reports regarding mishandling of customer funds and alleged US agency investigations as some of the reasons. Bitcoin closed the day around $15,800 – its lowest level since the end of 2020.

The story is continuing to unfold with speculations on whether CZ really had any intentions of buying FTX in the first place. Adding to this, in a lengthy twitter thread made after the breakdown of the deal, SBF stated ‘At some point I might have more to say about a particular sparring partner, so to speak. But you know, glass houses. So for now, all I’ll say is: well played; you won.’

Turning to macro news, we received CPI data for October yesterday. Headline CPI came in lower than expected at 7.7%. Crypto markets celebrated the news with bitcoin currently trading at around $17,300 – up 10% from its weekly lows. Ethereum is currently trading at around $1,300 – up 18% from its weekly lows.

Following the CPI print, markets have priced in a 50bp hike for December. However, we believe the Federal Reserve has a lot of work remaining and continue to expect a 75bp hike at the December FOMC meeting.

Performance of Our Indices

As for our various indices, they are all in the red. Our Privacy Index (-20% WoW) is down the most, whilst all other indices are down between 10% and 15% each (Charts 1 and 2).

Our Smart Contract (97%), Metaverse (97%), and Privacy (97%) indices are correlated most to bitcoin, while our and DeFi (94%) index is correlated least to bitcoin (Chart 3). On macro markets, bitcoin’s correlation to tech increased, but remained below 50% (Chart 4). Meanwhile, its correlation to gold (22%) reduced and its correlation to Oil (46%) is higher compared to last month. On rates, bitcoin remains negatively correlated to 10Y yields.

• Smart Contract Platform Index: Solana (SOL) down the most (-42% WoW) and Cardano (ADA) is down the least (-5% WoW). Ethereum (ETH) is down 15% WoW.
• DeFi Index: Aave (AAVE) is down the most (-19% WoW) whilst Maker (MKR) is the only coin to register gains (+4% WoW).
• Metaverse Index: Phantasma (SOUL) is down the most (-21% WoW) and Aavegotchi (GHST) is down the least (-4% WoW).
• Privacy Index: Dusk Network (DUSK) is down the most (-30% WoW) and Monero (XMR) is down the least (-11% WoW).
• Bitcoin: this is down 13% 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.