Crypto Index Tracker: Central Banks Step Up Rate Hikes – Ethereum Underperforms

Crypto markets have been hammered by the litany of central bank rate hikes delivered throughout the week. Bitcoin started the week around $19,500 before hitting lows of around $18,400 on Wednesday after the Federal Reserve (Fed) hiked 75bps, as expected. It is currently trading close to $19,000 – down 4% month to date.

Ethereum has been underperforming ever since the merge. It is currently trading close to $1,300 – down 15% month to date. Consequently, the ETH/BTC cross continues to trend down, it is currently around 0.07 – the lowest level since July.  

Central Banks Step Up Rate Hikes

Major central banks delivered rate hikes across the board this week. Continued hawkishness maintains a risk-off sentiment and negative macroeconomic backdrop for cryptocurrencies. Here are some of the key rate hikes we’ve seen recently:

• The Fed hiked by 75bp,  as expected.
• Riksbank (Sweden) hiked by 100bp.
• The Bank of England hiked by 50bp.
• The Swiss National Bank hiked by 75bp.
• Norges Bank (Norway) hiked by 50bp for the third meeting in a row.
• The Bank of Japan stayed dovish, though the Ministry of Finance intervened.

Rate hikes and inflation continue to weigh on sentiment for crypto markets and there are no signs of this slowing down any time soon with markets now pricing in an additional 125bp hike by end-2022. Moreover, recession probabilities are rising as the 2s10s inversion deepens. Overall, crypto is still being driven by the challenging macroeconomic backdrop and broader risk sentiment.

Performance of Our Indices

As for our various indices, our DeFi index (+2% WoW) is the only index to register gains (Charts 1 and 2). All other indices are down between 1% and 4% WoW.

Our Metaverse (87%) and Privacy (80%) indices are correlated most to bitcoin, while our DeFi (50%) and Smart Contract (52%) indices are correlated least to bitcoin (Chart 3). On macro markets, bitcoin’s correlation to gold (54%) jumped (Chart 4).

• Smart Contract Platform Index: all coins are down WoW except for Terra Luna Classic (LUNC), which is up 7%. EOS (EOS) and Ethereum (ETH) are down the most at around 10% each.  
• DeFi Index: mixed performance here with PancakeSwap (CAKE) up the most at 11% and Loopring (LRC) down the most at 4%.
• Metaverse Index: mixed performance here too with The Sandbox (SAND) up the most at 4% and Gala (GALA) down the most at 10%.
• Privacy Index: Verge (XVG) is up the most at just 1% and Beam (BEAM) is down the most at 18%.
• Bitcoin: this is down 1% 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.