Crypto Index Tracker: Bitcoin Stabilizes Around $24,000 As Investors Weigh FOMC Minutes
Federal Reserve (Fed) minutes released on Wednesday provided limited incremental information with inflation still “unacceptably high”. Bitcoin fell from weekly highs of approx. $25,250 to a minimum of approx. $23,500 before the release of the minutes, but has since stabilized at around $23,800.
Federal Reserve (Fed) minutes released on Wednesday provided limited incremental information with inflation still “unacceptably high”. Bitcoin fell from weekly highs of approx. $25,250 to a minimum of approx. $23,500 before the release of the minutes, but has since stabilized at around $23,800. In particular, most participants agreed that the labor market “remained tight, contributing to upward pressure on wages and prices,” which is consistent with our view that unemployment at a 50-year low suggests potential for upside to wage growth and services inflation. Indeed, the labor market remains robust – weekly initial jobless claims (Thursday) fell 3,000 to 192,000 vs. 197,000 expected. Elsewhere, nearly $2 billion worth of bitcoin options expire today, the put/call ratio is around 0.80 and we expects that liquidations will lead to some short-term volatility.
We continue to believe that inflation data show no signs of impending disinflation. FOMC participants have repeatedly announced that disinflation has begun, but Dominique believes any disinflation has been limited to core commodities which in turn have been driven by falling used car prices. With new cars becoming increasingly unaffordable and the used-to-new car ratio stabilizing well above pandemic levels, she sees potential upside for used car prices in the coming months that will end core disinflation. This creates greater risk of a higher terminal federal funds rate (FFR), beyond the recent increases in market prices, as well as a risk of another 50bp increase. Ultimately, the risk of strengthening the hawkish case at the FOMC will be bearish for cryptocurrencies.
The result of our indices
Our crypto indices remain largely in the green this week, with our Metaverse index up the most (+9% WoW). Meanwhile, our Bitcoin, Smart Contract and DeFi indices are up between 1% and 6% (Charts 1 and 2). Our privacy index is flat. Re-basing all the indices to early 2023 reveals that our Metaverse index is up the most (+116% YTD) and Bitcoin is up the least (+45% YTD).
Smart Contract (+86%), Privacy (+83%) and Metaverse (+82%) indices are most correlated to bitcoin, while the DeFi (+79%) index is least correlated to bitcoin (Figure 3).
In macro markets, Bitcoin’s correlation exists The S&P 500 (-10%, last month: +26%, Figure 4) has turned negative, while the correlation to the NASDAQ (+3%, last month: +37%) is now neutral. Its positive correlation to oil (+6%, last month: +31%) continues to decrease in magnitude, while that to gold (+45%, last month: +12%) has increased. Finally, Bitcoin remains negatively correlated to US 10-year yields (-26%, last month: -35%).
- Smart Contract Platform Index: VeChain (VET) is up the most (+21% WoW) while Fantom (FTM) is down the most (-7% WoW). Ethereum (ETH) is flat WoW.
- DeFi Index: Yearn Finance (YFI) is up the most (+32% WoW) while Loopring (LRC) is down the most (-7% WoW).
- Metaverse Index: Aavegotchi (GHST) is up the most (+50% WoW) while Phantasma (SOUL) is down the most (-5% WoW).
- Privacy Index: Decred (DCR) is up the most (+11% WoW) while Dusk Network (DUSK) is down the most (-15% WoW).
- Bitcoin: this is up +1% WoW.
What is in the four indices?
Here are the indices in more detail:
- Bitcoin: 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 can host smart contracts or decentralized applications and have allowed the emergence of the metaverse and defi. Ethereum (ETH) is the most popular version of a smart contract platform. In addition to ethereum, we also include some important 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 related to 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).
- Decentralized Finance (DeFi): financial services built on top of blockchain networks without central intermediaries. This can be a broad category, so we limit this to platforms that focus on lending/borrowing, yield farming, automated market making and decentralized 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 hide transactions on the blockchain to maintain the anonymity of 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 the use of machine learning, deep learning and alternative data for predictive modeling of financial markets.
Image credit: depositphotos.com
(The commentary in the article above 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.)
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