Crypto Index Tracker: Bitcoin Outperforms But Macro Headwinds Remain

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It’s been a volatile week for crypto markets. Bitcoin began to rally on Tuesday as confidence in the banking system eroded. First Republic Banks shares fell -50% after reporting a $100 billion drop in first-quarter deposits a day earlier.

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It’s been a volatile week for crypto markets. Bitcoin began to rally on Tuesday as confidence in the banking system eroded. First Republic Banks shares fell -50% after reporting a $100 billion drop in first-quarter deposits a day earlier. Bitcoin breached $30,000 on Wednesday before capitulating more than 8% on the same day, wiping out most of those gains. According to data from Coinglass, over $300 million in long and short positions were liquidated on Wednesday alone. Since then, bitcoin has regained momentum and is trading hands at around $29,200.

Surprisingly strong earnings from Microsoft, Google and Meta helped stock markets this week. Since Bitcoin tends to be positively correlated to tech stocks, some positive stock market sentiment has trickled down to crypto as well. However, within crypto, bitcoin has been the strongest performer with many altcoins (including Ethereum) still down this week.

Markets focus on next week’s FOMC meeting. We agree with the market pricing a 90% chance of a 25bp hike at the May 3 FOMC, but we disagree with the 60bp rate cuts planned for the rest of the year. A credit crunch has yet to occur, inflation data remains strong, and the FOMC has become more balanced in its assessment of the credit crunch and inflation risks. Overall, the data shows higher rates for longer which is bearish for cryptocurrencies.

Performance of our indices

This week, our Bitcoin index is the only index up (+4.3% WoW) with all other indices down between -2.4% and -4.6% (chart 2).

Our Smart Contract Index remains the most correlated to our Bitcoin Index (+86%). Meanwhile, our DeFi and Privacy indexes are around +82% correlated to our Bitcoin index. Our Metaverse Index is the least correlated (+64%; Chart 3).

The correlation between our Bitcoin index and all the macro markets we track in this report has increased compared to last month (Chart 4). Our Bitcoin index is now +46% correlated to the NASDAQ and +40% correlated to the S&P 500, compared to +29% and +22% last month. Meanwhile, its correlation to gold (+28%, last month: +25%) and 10-year yields (+19%, last month: +5%) have risen. Finally, the correlation of Bitcoins with oil is negligible.

Smart Contract Platform Index: Cardano (ADA) is the most up (+1.7% WoW) while Fantom (FTM) is the most down (-7.9% WoW). Ethereum is down -1.7% WoW. DeFi Index: Compound (COMP) is the one that has increased the most (+0.8% WoW) while PancakeSwap (CAKE) is the one that has fallen the most (-21.1% WoW). Metaverse Index: Aavegotchi (GHST) is the one that has increased the most (+3.4% WoW) while Ultra (UOS) is the one that has fallen the most (-15.6% WoW). Privacy Index: Zcash (ZEC) is the one that has increased the most (+1.1% WoW) while Keep Network (KEEP) is the one that has fallen the most (-5.2% WoW). Bitcoin Index: is up +4.3% WoW. What do the four clues contain?

Here are the clues 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 has been to have more programmable blockchains. These could host smart contracts or decentralized applications and enabled 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 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 enables interoperability between blockchains and the use of smart contracts via parachains. Metaverse: pieces associated with creating a virtual space/digital world on the internet using a combination of augmented reality, virtual reality and social media. 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’re narrowing it down 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 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 holds a BSc Mathematics and Computer Science and an MSc Mathematical Finance, both from the University of Birmingham. His areas of interest are the applications of machine learning, deep learning and alternative data for predictive modeling of financial markets. Photo Credit: depositphotos.com (The commentary in the above article does not constitute an offer, solicitation or recommendation to make or liquidate an investment or to effect any other transaction. to any investment or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.) Enter your email to read this exclusive Macro Hive

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