Crypto Index Tracker: Ethereum Outperforms on Successful Shapella Upgrade – Macro Hive

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This week, the cryptocurrency market has risen, driven by the slowdown in March headline CPI and market anticipation of c.75 bps of rate cuts by the end of 2023. Additionally, ethereum has outperformed bitcoin since the successful Shapella update on Wednesday. ETH/BTC is up +3.6% today, trading just below 0.07.

The Shapella update was successful. The update means that the ethereum network can process withdrawal requests, allowing validators to withdraw their staking rewards.

Liquid betting protocols have recovered. Ethereum is not the only cryptocurrency to benefit from the positive sentiment associated with the successful upgrade. Lido Staked Ether (STETH) is now in the top ten cryptocurrencies by market capitalization; STETH saw its market capitalization soar to all-time highs of around $12.5 billion, surpassing that of coins like Polygon, Polkadot, and Solana.

The macro backdrop. Wednesday's CPI data and Fed commercial bank balance sheet data supported market prices (70%) for a rate hike at the May 3 FOMC meeting. However, markets have priced in c.75 bp of cuts between May and the end of 2023; Dominique disagrees. Examining the CPI components, she finds that the March CPI showed no incremental progress on disinflation, as a smaller decline in used car prices offset a slower rise in housing costs.

Performance of our indices

This week, all of our crypto indices are in the green, led by our Bitcoin Index (+8% WoW). All other indices have risen between +2% and +7% each (Chart 2).

Our Smart Contract Index is more correlated with our Bitcoin Index (+85%). Meanwhile, our privacy and DeFi indices are +80% correlated with our Bitcoin index. Our Metaverse Index is the one with the least correlation (+75%; Graph 3).

Returned equity correlations. Our Bitcoin index is now +45% correlated to the NASDAQ and +35% to the S&P 500, up from 0% and -7% last month (Chart 4). Meanwhile, its correlation with gold (+28%, last month: +9%) also increased relative to last month. Bitcoin's correlation with 10-year yields and oil changed insignificantly relative to the same period last month.

• Smart Contract Platform Index: All coins are up. Solana (SOL) is the biggest gainer (+19% WoW), while Terra Luna Classic (LUNC) is the least gainer (+2% WoW). Ethereum (ETH) is up +8% WoW.
• DeFi Index: Yearn Finance (YFI) is up the most (+7% WoW), while PancakeSwap (CAKE) is the only coin down (-1% WoW).
• Metaverse Index: Gala (GALA) is the highest scaling (+7% WoW) while Phantasma (SOUL) is the lowest (-9% WoW).
• Privacy Index: Zcash (ZEC) is the highest gainer (+10% WoW) while Beam (BEAM) is the lowest (-6% WoW).
• bitcoin index: has increased +8% 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 mandara 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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