Crypto Index Tracker: Smart Contract Platforms Outperform in Early 2023

Yesterday, the US economy was in the spotlight as initial jobless claims dropped from 223k to 204k, according to data from the Bureau of Labour Statistics (BLS), demonstrating continued resilience in the labour market and dispelling any hopes of a Federal Reserve (Fed) pivot. Additionally, the December FOMC meeting minutes were hawkish, recognising upside risks to growth and explicitly stating that the Fed will not cut rates in 2023 for the first time. Bitcoin (-0.13%) and ethereum (-0.19%) touched lower.

In terms of future rate hikes, Dominique believes the market is underestimating upside growth, inflation risk, and Fed tightening. She continues to expect a 50bp hike at the February FOMC meeting.

Today, crypto markets are focused on the US jobs data. Bitcoin had dipped in the hours prior to today’s NFP release, but it has since resumed an uptrend after the stronger-than-expected nonfarm payrolls and as the US dollar weakened. The jobs data also showed wages grew slower than expected. Additionally, the moves up in bitcoin have been supported by the ISM Services PMI plummeting (49.6%), suggesting the services industry contracted in December.

Performance of Our Indices

As for the performance of our crypto indices, they are all in the green. Our Smart Contract Index up the most (+8% WoW). All other indices are up between 1% and 4%. Outperformance of the Smart Contract Index is largely due to Solana (SOL) rallying 40% WoW. Solana (SOL) appears to be rallying due to momentum around a Solana based meme coin, Bonk (a Shiba Inu themed token), which has surged over 2000% WoW. Meme coins are notoriously volatile.

Our Smart Contract (+84%), Metaverse (+82%), and Privacy (+82%) indices are most correlated to bitcoin, while our DeFi Index is least correlated to bitcoin (+80%; Chart 3).

On macro markets, bitcoin’s correlation to the S&P 500 (+22%) and the NASDAQ (+29%) 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 (+24%) and Oil (+21%) is also positive. Bitcoin is currently only negatively correlated to 10Y yields (-54%).

• Smart Contract Platform Index: All coins are up. Solana (SOL) is up the most at a staggering +40% WoW and Chainlink (LINK) is up the least (+1% WoW). Ethereum (ETH) is up +4% WoW.
• DeFi Index: All coins are up. Compound (COMP) is up the most (+7% WoW) and Maker (MKR) is up the least (+1% WoW).
• Metaverse Index: Gala (GALA) is up the most (+11% WoW) and Phantasma (SOUL) is down the most (-5% WoW).
• Privacy Index: Monero (XMR) is up the most (+7% WoW) and Horizen (ZEN) is down the most (-2% WoW).
• Bitcoin: this is up 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.

(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.)