Crypto Index Tracker: Inflation and Central Banks Shake Crypto Markets

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It has been another volatile week for crypto markets, following key inflation data and central bank meetings.

It has been another volatile week for crypto markets, following key inflation data and central bank meetings. On an annual basis, the headline CPI in the United States fell to +4.0% (+0.1% MoM) while the underlying CPI, which excludes the volatile components of food and l energy, stood at +5.3% (+0.4% MoM). US wholesale inflation has also cooled; The PPI stood at +1.1% over one year (-0.3% over one month). Meanwhile, the Federal Reserve (Fed) suspended rate hikes for the first time in 15 months while the European Central Bank (ECB) raised rates by 25 basis points. Elsewhere, Blackrock, the world’s largest asset manager, has filed for a spot bitcoin ETF.

Inflation is still high and stable, with used car price inflation remaining elevated, housing inflation virtually unchanged and non-housing services inflation accelerating.

Markets continue to undervalue the Fed. The Fed tried to compensate for its inaction in the face of high inflation by raising the points by 50 basis points. It lacks credibility because Fed Chairman Jerome Powell offered an unconvincing economic narrative. We see two more probable rises in July and November, more hawkish than the market expected.

Two more hikes might not be negative for risk assets because they wouldn’t slow growth or inflation much. Moreover, the stability of inflation expectations in the markets in the presence of a predictable and, on the whole, accommodative Fed, would support risky assets.

Performance of our indices

This week, all indices are in the red with our Bitcoin Index (-3.6% WoW) falling the least and our Metaverse Index (-17.5% WoW) falling the most.

Our DeFi index is the most correlated to our Bitcoin index (+80%). Our smart contracts index is lagging (+78%). Meanwhile, our Metaverse Index and Privacy Index are the least correlated (+75% and +70%, respectively; Chart 3).

Macro correlations turn negative, with bitcoin now negatively correlated to 10-year yields (-21%, last month: +37%), S&P 500 (-14%, last month: +39%), Nasdaq (-4%, last month: +34%), and oil (-20%, last month: +15%). Meanwhile, it remains marginally positively correlated to gold (+5%, last month: +9%).

Smart Contract Platform Index: All cryptocurrencies in this index saw declines, with Terra Luna Classic (LUC; -6.8% WoW) falling the least, while EOS (EOS; -28, 2% WoW) dropped the most. Ethereum (ETH) is down -9.8% WoW. DeFi Index: Maker (MKR; +3.1% WoW) was the only cryptocurrency that made gains in this index while Thorchain (RUNE; -23.8% WoW) fell the most. Metaverse Index: Decline in all areas with Phantasma (SOUL; -5.4% WoW) the least and RedFOX Labs (RFOX; -31.5% WoW) the lowest. Privacy Index: Decred (DCR; +3.6% WoW) posted gains while all other cryptocurrencies were in the red, with Dusk Network (DUSK; -24% WoW) falling the most. Bitcoin Index: is down -3.6% 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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