
Bitcoin & Crypto | Monetary Policy & Inflation | US
Bitcoin & Crypto | Monetary Policy & Inflation | US
This week, the crypto market has surged, fuelled by the March headline CPI slowdown and the market’s anticipation of c.75bps of rate cuts by end-2023. Moreover, ethereum has outpaced bitcoin since the successful Shapella upgrade on Wednesday. ETH/BTC is up +3.6% today, trading a touch under 0.07.
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This week, the crypto market has surged, fuelled by the March headline CPI slowdown and the market’s anticipation of c.75bps of rate cuts by end-2023. Moreover, ethereum has outpaced bitcoin since the successful Shapella upgrade on Wednesday. ETH/BTC is up +3.6% today, trading a touch under 0.07.
The Shapella upgrade was successful. The upgrade means that the ethereum network is can process withdrawal requests thereby enabling validators to pull out their staking rewards.
Liquid staking protocols have rallied. Ethereum is not the only cryptocurrency to benefit from positive sentiment associated with the successful upgrade. Lido Staked Ether (STETH) now sits in the top ten cryptocurrencies by market cap; STETH saw its market cap soar to all-time highs of around $12.5bn, having surpassed that of coins like Polygon, Polkadot and Solana.
The macro backdrop. Wednesday’s CPI data, and Fed commercial bank balance sheets data, backed market pricing (70%) of a rate hike at the 3 May FOMC meeting. However, markets have priced in c.75bps of cuts between May and end-2023 – Dominique disagrees. Looking into the CPI components, she finds that March CPI showed no incremental progress on disinflation as a smaller decrease in used car prices offset a slower increase in shelter costs.
This week, all our crypto indices are in the green, led by our Bitcoin Index (+8% WoW). All other indices are up between +2% and +7% each (Chart 2).
Our Smart Contract Index is most correlated to our Bitcoin Index (+85%). Meanwhile, our DeFi and Privacy indices are correlated around +80% to our Bitcoin Index. Our Metaverse Index is correlated the least (+75%; Chart 3).
Equity correlations returned. Our Bitcoin Index is now +45% correlated to the NASDAQ and +35% correlated to the S&P 500, from 0% and –7% last month (Chart 4). Meanwhile, its correlation to gold (+28%, last month: +9%) also increased relative to last month. Bitcoin’s correlation with 10Y yields and oil changed insignificantly relative to the same time last month.
Here are the indices in more detail:
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