We are over halfway through August and markets are battling with the Federal Reserve (Fed). Markets are taking every attempt to moderate the number of hikes priced in, it has been boosting risk sentiment and, consequently, risk assets. Meanwhile, Fed speakers are telling them they should be doing the opposite. Most recently, Voter Esther George noted that it was ‘not time for a victory lap’, while St Louis Fed President Bullard stated his desire for a third straight 75bps hike in September, in line with Dominique’s expectations.
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We are over halfway through August and markets are battling with the Federal Reserve (Fed). Markets are taking every attempt to moderate the number of hikes priced in, it has been boosting risk sentiment and, consequently, risk assets. Meanwhile, Fed speakers are telling them they should be doing the opposite. Most recently, Voter Esther George noted that it was ‘not time for a victory lap’, while St Louis Fed President Bullard stated his desire for a third straight 75bps hike in September, in line with Dominique’s expectations. It has helped DXY stage a return towards its year highs. Crypto markets have not fared as well (Chart 1). Bitcoin has tapered 3% lower, nothing in comparison to the 12% fall in our DeFi index (Chart 2). Meanwhile, our Smart Contract (-8% WoW), Metaverse (-10%), and Privacy (-9%) saw no reprieve.
Three of the four indices we track, are losing their extremely high correlations with bitcoin (Chart 3). This extends to US equity indices too; bitcoin’s 30-day rolling correlation with the S&P 500 has fallen to 68.2% from 83.8% and it fell to 67.6% from 82.5% for the NASDAQ. Meanwhile, bitcoin is now beginning to move with the US ten-year (41.0%) and Brent Crude (-49.8%), it was not previously, and has fallen out of love with the US two-year (0.9% vs -48.9% previously). We dive into bitcoin’s correlation with major assets in our latest bitcoin update.
- Smart Contract Platform Index: Avalanche has collapsed, down 16.0% over the past week after being up 21% last week. Meanwhile, eos was the breath of fresh air, up 12.6% over the same period.
- DeFi Index: No positives here, no constituents posted a gain over the past week. Maker depreciated the most, down 16.9%.
- Metaverse Index: Similarly, no positive performers here; the virtua kolect lost 16.3% over the past week.
- Privacy Index: Dusk network was the biggest loser (-18.2%) across all indices. One coin managed to hold a positive week in the index: monero (+0.2%).
- Bitcoin: is down 2.9% on the week, reversing some of last week’s gain.
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.
(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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