Crypto Index Tracker: Bitcoin Outperforms But Macro Headwinds Remain

It has been a volatile week for crypto markets. Bitcoin started to rally on Tuesday as trust eroded in the banking system – First Republic Bank’s shares were down -50% after it announced a $100bn drop in deposits in the first quarter a day earlier. Bitcoin breached $30,000 on Wednesday before capitulating over 8% on the same day, wiping out most of those gains. According to data from Coinglass, over $300mn of long and short positions were liquidated on Wednesday alone. Since then, bitcoin has regained momentum and is exchanging hands at around $29,200.

Surprisingly strong earnings from Microsoft, Google and Meta helped equity markets this week. Given bitcoin’s tendency to be positively correlated to tech stocks, some positive sentiment from the equity markets spilled over into crypto, too. However, within crypto, bitcoin has been the clear outperformer with many altcoins (including ethereum) still down on the week.

Markets are focused on next week’s FOMC meeting. We agree with the market pricing a 90% chance of a 25bp hike at the 3 May FOMC but disagree with the 60bps of rate cuts priced in for the rest of the year. A credit crunch is yet to occur, inflation data remains strong, and the FOMC has become more balanced in its assessment of credit crunch and inflation risks. Overall, data points to higher for longer rates, which is bearish for cryptocurrencies.

Performance of Our Indices

This week, our Bitcoin Index is the only index that is up (+4.3% WoW) with all other indices down between -2.4% and -4.6% (Chart 2).

Our Smart Contract Index remains most correlated to our Bitcoin Index (+86%). Meanwhile, our DeFi and Privacy indices are correlated around +82% to our Bitcoin Index. Our Metaverse Index is correlated the least (+64%; Chart 3).

Correlation between our Bitcoin Index and all macro markets we track in this report increased relative to last month (Chart 4). Our Bitcoin Index is now +46% correlated to the NASDAQ and +40% correlated to the S&P 500, from +29% and +22% last month.Meanwhile, its correlation to gold (+28%, last month: +25%) and 10Y yields (+19%, last month: +5%) increased. Lastly, Bitcoin’s correlation with oil is negligible.

• Smart Contract Platform Index: Cardano (ADA) is up the most (+1.7% WoW) while Fantom (FTM) is down the most (-7.9% WoW). Ethereum is down -1.7% WoW.
• DeFi Index: Compound (COMP) is up the most (+0.8% WoW) while PancakeSwap (CAKE) is down the most (-21.1% WoW).
• Metaverse Index: Aavegotchi (GHST) is up the most (+3.4% WoW) while Ultra (UOS) is down the most (-15.6% WoW).
• Privacy Index: Zcash (ZEC) is up the most (+1.1% WoW) while Keep Network (KEEP) is down the most (-5.2% WoW).
• Bitcoin Index: is up +4.3% 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.

Photo Credit: depositphotos.com

(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.)