The Federal Reserve (Fed) rose 25bp. On Wednesday, the Fed delivered a 25bp hike, in line with the consensus. The late-2023 federal funds rate (FFR) in the new Summary of Economic Projections (SEP) was unchanged at 5.1%.
The Federal Reserve (Fed) rose 25bp. On Wednesday, the Fed delivered a 25bp hike, in line with the consensus. The late-2023 federal funds rate (FFR) in the new Summary of Economic Projections (SEP) was unchanged at 5.1%. In the statement issued at the end of the meeting, Fed officials expressed confidence in the health of the US banking system while acknowledging that "the Committee remained very attentive to inflation risks." Bitcoin fell to lows around $26,600 after the rate hike news.
Bitcoin shakes off Wednesday's losses. Since bottoming out in the week on Wednesday, positive momentum has returned for Bitcoin and it has recouped most of the losses it incurred after the Federal Reserve rate hike decision. It is currently stabilized at around $28,000.
The Fed expects a Goldilocks banking crisis. Dominque noted that the Fed expects bank volatility not to be high enough to lead to a full blown crisis, but still high enough to reduce the need for Fed hikes. In practice, banking crises tend to be intense or they don't happen at all, so it's likely that the fed funds rate will either fall much more than the market is pricing in or rise much more than the Fed anticipates.
We believe that the probability of a total crisis is low โ The latest Fed balance sheet data has shown some stabilization in the banking system and general lending to banks did not show any increase last week.
Are 2023 Rate Cuts Likely? Markets are pricing in around 75bp cuts between May and December. We believe that 2023 rate cuts are unlikely, thanks in part to the well-capitalized nature of the US banking system that makes a full-scale banking crisis unlikely.
Performance of our indices
Bitcoin outperformed all other indices this week. All of our crypto indices are in the green this week, led by Bitcoin (+13% WoW). All other indices are up between +3% and +10% each. After being surpassed at the start of the year, our Metaverse index is up the most (+79% YTD) and our Privacy index is up the least (+33% YTD). Meanwhile, Bitcoin is up +72% YTD.
Our Smart Contract Index is more correlated with Bitcoin (+85%). Meanwhile, the remaining three indices have a correlation with Bitcoin of around +83% (Chart 3).
Bitcoin is negatively correlated with oil. In macro markets, Bitcoin's correlation to oil has turned negative (-42%, last month: +5%, Chart 4). Meanwhile, its correlation with the S&P 500 has increased to +23% (last month: -12%) while its correlation with the NASDAQ has increased to +32% (last month: +1%). Elsewhere, Bitcoin's correlation to 10-year returns (+3%, last month: -24%) has moved into positive territory, while its positive correlation to gold (+29%, last month : +41%) has decreased.
- Smart Contract Platform Index: All coins are up. Fantom (FTM) is the highest riser (+20% WoW), while Terra Luna Classic (LUNC) is the lowest riser (+1% WoW). Ethereum (ETH) is up +8.6% WoW.
- DeFi Index: Loopring (LRC) is the highest gainer (+15% WoW) while Maker (MKR) is the lowest gainer (-3% WoW).
- Metaverse Index: Sandbox (SAND) is the highest scaling (+12% WoW) while Phantasma (SOUL) is the lowest (-6% WoW).
- Privacy Index: Dash (DASH) is the highest gainer (+20% WoW) while Beam (BEAM) is the lowest (-8% WoW).
- bitcoin: it's up 13% WoW.
What's 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 every other crypto market.
- Smart contract platforms: After bitcoin, the big innovation was having blockchains that were more programmable. These could house smart contracts or decentralized applications and have allowed the rise 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 components 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 included Polkadot (DOT) which enables interoperability between blockchains and the use of smart contracts through parachains.
- Metaverse: currencies associated with the creation of 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 blockchain networks without central intermediaries. This can be a broad category, so we restrict it to platforms that focus on lending/lending, 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), 1 inch (1 INCH) , Thorchain (RUNE) and Terra (MOON).
- 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 will send is a quantitative researcher at Macro Hive. Dalvir has a BA in Mathematics and Computer Science and an MS in Mathematical Finance, both from the University of Birmingham. His areas of interest are machine learning, deep learning and alternative data applications for predictive modeling of financial markets.
Author of the photo: depositphotos.com
(The commentary contained in the above article does not constitute an offer or solicitation, or a recommendation to implement or liquidate an investment or to enter into any other transaction. It should not be used as the basis for any investment or other decision. Any investment decision should rely on appropriate professional advice specific to your needs).
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