Crypto Index Tracker: FTX Fallout Shows No Signs of Easing  

The implosion of Sam Bankman-Fried’s (SBF) crypto exchange, FTX, has rippled through cryptocurrency markets and the fallout has taken no prisoners. Gemini, an exchange founded by the Winklevoss brothers, is the latest to be affected after an onslaught of exchange withdrawals over the past week. Genesis Global Capital (Genesis), the lending partner of Gemini’s yield-generating product, Gemini Earn, has paused withdrawals, leaving $700mn of Gemini Earn customer funds in limbo.  Here are some of the other latest developments on the FTX contagion:

• A class action law suit has been filed against SBF and several athletes and celebrities who helped promote FTX.
• Crypto lender, BlockFi, prepares for bankruptcy.
• Crypto lender, Salt, halts withdrawals.
• Liquid Global (a crypto exchange owned by FTX) halts withdrawals.

Turning to market moves, bitcoin is currently trading at around $16,800 (-13% MoM) and ethereum is trading at around $1,200 (-5% MoM). Notably, the FTX fallout has increased volatility in the two major cryptocurrencies after it hit multi-year lows last month. Bitcoins annualised 30-day volatility has jumped from 26% at the start of the month to 70%, while that of ethereum has jumped from 43% to 102%. We expect volatility to remain high as the FTX fallout continues to unfold.

Performance of Our Indices

As for our various indices, they are all in the red. Our Metaverse Index (-13% WoW) is down the most, whilst all other indices are down between 5% and 12% each (Charts 1 and 2).

Our Metaverse (97%), Smart Contract (96%), and Privacy (96%) indices are correlated most to bitcoin, while our and DeFi (93%) index is correlated least to bitcoin (Chart 3).

On macro markets, bitcoin’s correlation to the S&P 500 (-20%) and the NASDAQ (-31%) flipped to negative. It turned negative on 10 November after Binance pulled out of a potential acquisition of FTX which sent bitcoin to multi-year lows. Meanwhile, its correlation to gold (-47%) also turned negative while its correlation to 10Y yields jumps to 42%.

• Smart Contract Platform Index: Solana (SOL) is down the most (-24% WoW) and Eos (EOS) is down the least (-4% WoW). Ethereum (ETH) is down 8% WoW.
• DeFi Index: Maker (MKR) is down the most (-26% WoW) while Uniswap (UNI) is flat on the week.
• Metaverse Index: Decentraland (MANA) is down the most (-21% WoW) and Axie Infinity (AXS) is down the least (-3% WoW).
• Privacy Index: Keep Network (KEEP) is down the most (-14% WoW) and Secret (SCRT) is up the most (+14% WoW).
• Bitcoin: this is down 5% WoW.

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.