Bitcoin & Crypto | Monetary Policy & Inflation | US
Crypto markets have started the year with a bang. Bitcoin is on track to register its best performance for January since 2013! It gained c.+55% in January 2013 and has generally had a bias for negative performance since then with the trend only changing as of late (January 2020: +30%; January 2021: +13%).
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Crypto markets have started the year with a bang. Bitcoin is on track to register its best performance for January since 2013! It gained c.+55% in January 2013 and has generally had a bias for negative performance since then with the trend only changing as of late (January 2020: +30%; January 2021: +13%). Bitcoin is currently up +38% YTD, making this the second-best January, so far, since 2013. In order to match the January 2013 gains (+55%), bitcoin, which is currently trading at around $23,000, would need to close the month at around $25,800 – a +12% increase on its current price. A tall order with four days of January remaining, though not impossible given how volatile cryptocurrency markets are.
Additionally, we recently tested whether turn-of-the-month (TOTM) seasonality, in which stocks usually increase during the last 4 days of the month and into the first 3 days of the next month, applies to crypto. The punchline was that the TOTM effect does apply to cryptocurrencies, which would imply that bitcoin is poised for another leg up over the next week or so., should history repeat itself.
On the macro front, Dominique expects a 25bp hike at the 1 February FOMC meeting, in line with consensus. She notes that since the December 2022 meeting, lower inflation and strong employment growth have created an ambiguous macro backdrop that decisively validates neither hawks nor doves.
Performance of Our Indices
As for the performance of our crypto indices, they are all in the green. Our Privacy Index is up the most (+26% WoW) while all other indices are up at least +9% WoW.
The outperformance of our Privacy Index is largely due to Keep Network (KEEP) rallying a staggering +154% WoW. The token has gained momentum due to the on-chain merger between Keep Network and NuCypher to form Threshold (T) – whose own native token has rallied over +130% WoW after Coinbase announced that Threshold (T) has been added to its roadmap for listing. Threshold (T) has been dubbed the first ever merger of two decentralised protocols and aims to combine Keep Network and NuCypher’s infrastructure to provide privacy-focused solutions.
Our DeFi (+78%) and Smart Contract (+78%) indices are most correlated to bitcoin, while our Privacy (+53%) and our Metaverse (+67%) indices are least correlated to bitcoin (Chart 3).
On macro markets, bitcoin is positively correlated to the S&P 500 (+27%, Chart 4), the NASDAQ (+40%), oil (+28%), and gold (+10%). Meanwhile, it remains negatively correlated to US 10Y yields (-33%).
- Smart Contract Platform Index: Fantom (FTM) is up most (+59% WoW) while Terra Luna Classic (LUNC) is the only coin down (-1% WoW). Ethereum (ETH) is up +3% WoW.
- DeFi Index: Loopring (LRC) is up most (+22% WoW) while Terra Luna Classic (LUNC) is down the most (-1% WoW).
- Metaverse Index: All coins are up. Axie Infinity (AXS) is up the most (+43% WoW) while Aavegotchi (GHST) is up the least (+1% WoW).
- Privacy Index: Keep Network (KEEP) is up the most (+154% WoW) while Beam (BEAM) is down the most (-40% WoW).
- Bitcoin: this is up +9% 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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