

The US CPI undershoot gave risk assets another boost on expectations that the worst may be over for inflation. We disagree on the basis that core inflation continues to climb and that the MoM stability was almost exclusively down to energy price moves. The market, however, is pricing the situation more like a sign that Fed hawkishness may be fading. The consequent generic risk asset bid fed into crypto markets, with all the indices we track up on the week (Charts 1 and 2).
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The US CPI undershoot gave risk assets another boost on expectations that the worst may be over for inflation. We disagree on the basis that core inflation continues to climb and that the MoM stability was almost exclusively down to energy price moves. The market, however, is pricing the situation more like a sign that Fed hawkishness may be fading. The consequent generic risk asset bid fed into crypto markets, with all the indices we track up on the week (Charts 1 and 2). Leading the charge were privacy and smart contract indices (Chart 2). Our view is that this near-term bounce in risk assets will fade ahead as more hawkish Fed speakers set out their stalls.
All the indices we track maintain a very high correlation with bitcoin right now, as expected given the generic nature of the price action (Chart 3). This correlation extends to other macro assets. Bitcoin’s correlation with the S&P and Nasdaq is unsurprisingly very positive and rising, while its correlation with 2Y UST yield has shifted negative (meaning a positive correlation between the price of the asset, Chart 4). This is a further indication that right now the pricing of Fed hawkishness is driving risk asset value, and crypto along with it.
- Smart Contract Platform Index: Avalanche is up the most over the past seven days at +21%. Terra-Luna was meanwhile the index laggard, down 2.5% on the week.
- DeFi Index: AAVE and Compound were the week’s biggest gainers (+11%).
- Metaverse Index: Ultra (+23%) saw the greatest gains among Metaverse coins. The rest of the index posted single digit gains, with aavegotchi and enjincoin both roughly flat on the week.
- Privacy Index: Decred (+30%) was the biggest gainer. In total, more than half of the index posted double digit gains. Monero, meanwhile, lagged trading flat on the week.
- Bitcoin: is up 5.7% on the week, largely reversing the previous week’s decline.
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.