Crypto Index Tracker: Metaverse Leads the Charge

Yesterday, data from the labour department revealed U.S. CPI rose 6.5% YoY in December, in line with expectations. However, this is smallest rise since October 2021 and comes after a 7.1% YoY rise in November. Crypto markets welcomed the news with bitcoin exceeding $19,000 yesterday for the first time since the FTX implosion. Meanwhile, ethereum breached $1,400.

Markets appear to be pricing in a 25bp hike at the 1 February FOMC meeting. However, there appears to be a disconnect between the markets view on inflation/rate hikes and the those of the Federal Reserve (Fed). Indeed, the December FOMC meeting minutes were hawkish, recognising upside risks to growth and, for the first time, explicitly stated that the Fed will not cut rates in 2023. Additionally, the labour market is still hot with initial jobless claims (actual: +205,000 versus expected: +215,000) falling by 1,000 for the week ended 7 January.

In terms of future rate hikes, Dominque continues to expect a 50bp hike at the 1 February FOMC meeting as she believes Q4 GDP (to be released on 26 January) will be well above the FOMC estimate of trend of 1.8%, raising concerns overs risks of wages recovery.

Bitcoin and ethereum are currently exchanging hands at around $19,000 (+12% WoW) and $1,400 (+13% WoW), respectively.

Performance of Our Indices

As for the performance of our crypto indices, they are all in the green. Our Metaverse Index is up the most (+28% WoW). All other indices are up at least 10%. The outperformance of the Metaverse Index is partly due to Gala (GALA) rallying a staggering +125% WoW. Gala (GALA) appears to be rallying due to a (now deleted) tweet announcing a partnership between Gala Games and Hollywood stars Dwayne Johnson (The Rock) and Mark Wahlberg. Despite Gala (GALA) pulling back after the tweet was deleted, it still leads.

Our Privacy (+82%), DeFi (+80%) and Smart Contract (+78%) indices are most correlated to bitcoin, while our Metaverse Index is least correlated to bitcoin (+66%; Chart 3).

On macro markets, bitcoin’s correlation to the S&P 500 (+47%) and the NASDAQ (+49%) has returned to positive. Bitcoin’s correlation to the two equity indices 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 (+19%) and Oil (+35%) is also positive. Bitcoin is currently only negatively correlated to 10Y yields (-61%).

• Smart Contract Platform Index: All coins are up. Avalanche (AVAX) is up the most (+31% WoW) and Terra Luna Classic (LUNC) is up the least (+10% WoW). Ethereum (ETH) is up +13% WoW.
• DeFi Index: All coins are up. Maker (MKR) is up the most (+24% WoW) and PancakeSwap (CAKE) is up the least (+7% WoW).
• Metaverse Index: All coins are up. Gala (GALA) is up the most (+125% WoW) and Aavegotchi (GHST) is up the least (+2% WoW).
• Privacy Index: All coins are up. Secret (SCRT) is up the most (+17% WoW) and Beam (BEAM) is up the least (+3% WoW).
• Bitcoin: this is up 12% 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.

(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.)