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The main factors behind the price action in the crypto markets this week were:
- US Dollar Strength. The correlation between Bitcoin and the US Dollar Index (DXY) is typically negative, and the DXY’s bullish momentum over the week has weighed on crypto markets.
- Tense labor market conditions. With lower than expected initial jobless claims, there is less likelihood of a pause in the June FOMC meeting as the FOMC has repeatedly signaled that an easing in labor markets is necessary for a rate cut.
- Fed hawkish comments. President of the Dallas Fed said Lorie Logan “Data over the coming weeks may yet show that it is appropriate to skip a session.” However, we are not there yet.” In short, the latest data does not suggest a pause in rate hikes in June is justified.
- Debt ceiling concerns. U.S. stocks rose on Thursday, dragging crypto markets with them as debt ceiling talks made some headway.
Will the Fed hike rates in June? The labor market remains very tight, inflation is well above target and “the process of bringing inflation back to 2 percent is still a long way off.” Markets are increasing the likelihood of a 25 basis point rate hike in June latest 30-day fed funds futures prices point to a 43 percent chance of a rate hike in June. A continuation of the current labor market and inflation dynamics would justify a rate hike of 25 basis points in June. But even if a rate hike is justified on economic grounds, one risk to this view is a debt ceiling crisis, which would likely prevent the Fed from raising rates in June and prompt a sell-off in risky assets.
Performance of our indices
This week all our indices are in the green, except Bitcoin which is down -0.7% in WoW. Our Privacy Index rose the most (+4.7% WoW), followed by our Metaverse Index (+4.5% WoW). All other indices are up between +1.5% WoW and 1.9% WoW (Chart 2).
Our Smart Contract Index remains the most correlated with our Bitcoin Index (+87%). Meanwhile, our DeFi and Metaverse indices correlate with our Bitcoin index by +83% and +80%, respectively. Our privacy index shows the lowest correlation (+72%; Chart 3).
The correlation between our Bitcoin Index and all of the macro markets we track in this report remains positive (Chart 4). Our Bitcoin Index is +38% correlated with the NASDAQ and +43% with the S&P 500, up from +52% and +41% respectively in the previous month. Meanwhile, its correlation with gold (+4%, last month: +28%) has fallen, while its correlation with 10-year yields (+41%, last month: +2%) has increased. Finally, the correlation to oil turned positive (+19%, last month: -29%).
- Smart Contract Platform Index: Terra Luna Classic (LUNC) is down the most (+5.0% WoW) and Avalanche (AVAX) is down the most (-1.6% WoW). Ethereum (ETH) is WoW flat.
- DeFi Index: Aave (AAVE) is down the most (+5.1% WoW) and 1INCH is down the most (-1.8% WoW).
- Metaverse Index: Decentraland (MANA) is the most down (+11.3% WoW) and RedFox Labs (RFOX) is down the most (-10.4% WoW).
- Privacy Index: Beam (BEAM) is up the most (+27.6% WoW) and Decred (DCR) is down the most (-7.3% WoW).
- Bitcoin Index: is down -0.7% WoW.
What are the four indices?
Here are the indices in detail:
- Bitcoin: The OG of crypto markets deserves a category of its own and in many ways is the true benchmark for any other crypto market.
- Smart contract platforms: After Bitcoin, the big innovation was having blockchains that were more programmable. These could host smart contracts or decentralized applications and have enabled the emergence of 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 enables 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 blockchain networks and have no central intermediaries. This can be a broad category, so we’re narrowing it down to platforms focused on lending/borrowing, yield farming, automated market making, and decentralized exchange tokens. The components 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 obfuscate transactions on the blockchain to protect the anonymity of their users and their activities. The components 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 holds a BSc in Mathematics and Computer Science and an MSc in Financial Mathematics from the University of Birmingham. His areas of interest are in the applications of machine learning, deep learning, and alternative data for predictive modeling of financial markets.
Photo credit: Depositphotos.com
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