Bitcoin & Crypto | Monetary Policy & Inflation | US
Bitcoin closes the quarter up 72%. Crypto markets have generally been taking a hit this week but with Q1 coming to an end it’s useful to zoom out and get a big picture view of how markets have moved this quarter.
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Bitcoin closes the quarter up 72%. Crypto markets have generally been taking a hit this week but with Q1 coming to an end it’s useful to zoom out and get a big picture view of how markets have moved this quarter. Our Metaverse and Bitcoin indices are up the most (+72% YTD each) and our Privacy index is up the least (+32% YTD), once rebased to the start of the year. For context, the tech-heavy NASDAQ finished Q1 up +15% YTD while the S&P 500 is up just +6% YTD. Elsewhere, gold has returned c. +10% YTD while Oil (Brent) staggered (c. -5% YTD).
$4bn worth of Bitcoin options expired this morning. At 08:00 UTC (09:00 UKT) c. $4bn worth of Bitcoin options were settled on the Deribit exchange (one of the largest crypto options exchanges). Notably, there was a large concentration (c. $250mn) of call options struck at $30,000. There is often heightened volatility around option expiry dates, especially in the context of bitcoin’s recent rally, as options market makers continually adjust their hedges.
Are 2023 rate cuts likely? The Fed has signalled its intent to hike once more this year then pause. Even if inflation does not slow, the Fed may not hike more until it is confident that a credit crunch will not cause a hard landing. Against this, markets are pricing about 60bp of cuts, which we believe is unlikely.
Performance of Our Indices
All our crypto indices are in the red this week, led by our Metaverse index (-6% WoW). All other indices are down between 1% and 4% each.
Our Smart Contract Index is most correlated to Bitcoin (+85%). Meanwhile, the remaining three indices have a correlation with Bitcoin of around +83%(Chart 3).
Bitcoin remains negatively correlated to oil. On macro markets, Bitcoin’s negative correlation to oil (-42%, last month: -24%, Chart 4) has increased in magnitude. Meanwhile, its correlation to the S&P 500 sits at +21% (last month: -15%) while its correlation to the NASDAQ is +30% (last month: +0%). Elsewhere, Bitcoin’s correlation to 10Y yields (+3%, last month: -12%) has started to move into positive territory while its positive correlation to Gold (+25%, last month: +22%) has increased relative to last month.
- Smart Contract Platform Index: Eos (EOS) is up the most (+2% WoW) while Fantom (FTM) is down the most (-10% WoW). Ethereum (ETH) is down -1.8% WoW.
- DeFi Index: 1Inch (1INCH) is up the most (+9% WoW) while Aave (AAVE) is down the most (-9% WoW).
- Metaverse Index: Ultra (UOS) is up the most (+3% WoW) while Aavegotchi (GHST) is down the most (-11% WoW).
- Privacy Index: Beam (BEAM) is up the most (+54% WoW) while Dusk Network (DUSK) is down the most (-18% WoW).
Bitcoin: is down -1.5% 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).