After the last FOMC meeting, markets thought we had reached a peak in Fed hawkishness. Crypto markets climbed onto this narrative and grinded higher, with bitcoin ending July up 23% from its mid-month low. But as we said then, this perception of the Fed is likely wrong – we see it hiking by another 175bps this year. Today’s nonfarm payrolls data only further pressures the Fed to hike, with job growth surging and recession fears cooling.
Now, crypto markets are coming to the stark realisation that the Fed is not finished. All our indices are in the red (except our Metaverse Index, which is up; Charts 1 and 2). This is the reverse of last week with our Bitcoin Index down most (-4.9%).
Our Smart Contract Index remained most correlated to bitcoin at 97%, a 7pp increase from last week (Chart 3). Our DeFi Index is the least correlated to bitcoin at 89%. On macro markets, bitcoin’s correlation with US 10Y yields (26%) has changed most over the past 30 days (+55pp), while it is most closely correlated with the S&P500 (73%; Chart 4). Meanwhile, its correlation to oil (36%) and gold (6%) has retreated over the past 30 days.
- Smart Contract Platform Index: VeChain (VET) is up the most over the past seven days at +13.1%. EOS (EOS) reversed last week’s fortunes; it is down most at -9.3%.
- DeFi Index: Yearn.finance (YFI) continued its winning streak; it is up 17.6% over the past seven days. Meanwhile, Thorchain (RUNE) could not snap its losing streak; it is down the most (again) in DeFi (-9.3% over the past seven days).
- Metaverse Index: Phantasma (SOUL) led the Metaverse index higher; it is up 18.9% over the past seven days. However, the index could have ended even higher but for Sandbox (SAND). The metaverse token was down 3.7% over the past seven days.
- Privacy Index: Beam (BEAM) is up the most at 3.7% and Secret (SCRT) is down the most at 9.9%
- Bitcoin: this is down 4.9%.
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.