Crypto Index Tracker: Is the FTX Contagion Fading?
- By Dalvir Mandara
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- 4 min read
Crypto markets have shaken off some of the bearish pressures following the FTX implosion. Bitcoin hit lows of c. $15,600 on Monday before rallying to highs of c. $16,800 yesterday. It is currently trading at c. $16,500 – up 4% since the start of the week. Ethereum has followed suit, it is currently trading at c. $1,180 – up 7% since the start of the week. Despite the moves up from this week’s lows, both bitcoin and ethereum have re-entered sideways channels and are down 21% and 25% MoM, respectively.
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Crypto markets have shaken off some of the bearish pressures following the FTX implosion. Bitcoin hit lows of c. $15,600 on Monday before rallying to highs of c. $16,800 yesterday. It is currently trading at c. $16,500 – up 4% since the start of the week. Ethereum has followed suit, it is currently trading at c. $1,180 – up 7% since the start of the week. Despite the moves up from this week’s lows, both bitcoin and ethereum have re-entered sideways channels and are down 21% and 25% MoM, respectively.
The recent leg up from the weekly lows has been supported by a dovish twist from the November FOMC meeting minutes. The minutes revealed that ‘a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate.’ However, we believe market consensus underestimates inflation and the terminal federal funds rate (FFR). Even if the pace of hikes is slowed in December, we continue to expect a terminal rate close to 8%.
Performance of Our Indices
As for our various indices, performance is mixed. Our Privacy Index (+3% WoW) is up the most. Its outperformance is largely attributed to the Dash (DASH) privacy coin rallying 25% WoW after they announced the launch of Dash App – an app that enables you to ‘send, pay, receive, save and manage money easily, in a single app’. Meanwhile, all other indices are either down 1% or flat (Charts 1 and 2).
Our Metaverse (97%), Smart Contract (96%), and Privacy (96%) indices are correlated most to bitcoin, while our DeFi (93%) index is least correlated to bitcoin (Chart 3).
On macro markets, bitcoin’s correlation to the S&P 500 (-30%) and the NASDAQ (-42%) 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 (-51%) also turned negative and its correlation to 10Y yields jumps to 43%.
- Smart Contract Platform Index: Chainlink (LINK) is up the most (+10% WoW) and Terra Luna Classic (LUNC) is down the most (-6% WoW). Ethereum (ETH) is flat.
- DeFi Index: PancakeSwap (CAKE) is up the most (+6% WoW) and Terra Luna Classic (LUNC) is down the most (-6% WoW).
- Metaverse Index: Phantasma (SOUL) is up the most (+16% WoW) and Gala (GALA) is down the most (-8% WoW).
- Privacy Index: Dash (DASH) is up the most (+25% WoW) and Secret (SCRT) is down the most (-22% WoW)
- Bitcoin: this is down 1% 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.
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.