Crypto Index Tracker: Crypto and US Equity Correlation Rises
- By Dalvir Mandara
- 4 min read
Chair Jerome Powell was openly hawkish at the Jackson Hole Symposium last week. He stated that ‘Reducing inflation is likely to require a sustained period of below trend growth that will bring some pain to households and businesses.’ Other central bankers followed suit, setting the stage for a hard battle against price rises. It encouraged markets back into risk-off, with equities suffering. August CPI data on 13 September and the 20-21 September FOMC meeting will be important for further indication of macro headwinds to come.
Crypto and US equities had decoupled. Now, however, they are moving in tandem, with the correlation between bitcoin and the NASDAQ and the S&P 500 increasing towards 75%.
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Chair Jerome Powell was openly hawkish at the Jackson Hole Symposium last week. He stated that ‘Reducing inflation is likely to require a sustained period of below trend growth that will bring some pain to households and businesses.’ Other central bankers followed suit, setting the stage for a hard battle against price rises. It encouraged markets back into risk-off, with equities suffering. August CPI data on 13 September and the 20-21 September FOMC meeting will be important for further indication of macro headwinds to come.
Crypto and US equities had decoupled. Now, however, they are moving in tandem, with the correlation between bitcoin and the NASDAQ and the S&P 500 increasing towards 75%.
As for our various indices, they are mostly in the red. Our Bitcoin, Metaverse, and Privacy indices are all down over 7%. Meanwhile, our Smart Contract and DeFi indices are up. This is because they still contain Terra Luna Classic (the original token of the Terra blockchain), which has rocketed 105% over the past seven days. However, all other constituents in each of those two indices are down.
Our Smart Contract and Metaverse indices are most correlated to bitcoin at around 90% each (Chart 3). Our DeFi and Privacy indices are least correlated to bitcoin at around 86% each. On macro markets, bitcoin’s correlation to tech increases while the correlation with 10Y yields (negative) and Gold (positive) has jumped (Chart 4).
- Smart Contract Platform Index: all coins are down except for Terra Luna Classic (LUNC). Avalanche (AVAX) has fared the worst declining 16%. Ethereum (ETH) is down 6%.
- DeFi Index: all coins are down except for Terra Luna Classic (LUNC). Thorchain (RUNE) is down the most at 11%.
- Metaverse Index: red across the board here with Phantasma (SOUL) down the most at 15% and Aavegotchi (GHST) down the least at 3%.
- Privacy Index: Dusk Network (DUSK) is the only coin to have made gains on the week, albeit just 1%. Secret (SCRT) is down the most at 17%.
- Bitcoin: this is down 7%.
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.
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.