Alpha Navigator: Quest for Alpha [December 2023]

FOMC minutes appear to reaffirm prospect of rates turnaround. Risk assets were mostly up in December, led by ETH and BTC.

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Executive Summary

• Asset classes mostly rose in December, with BTC and ETH leading.

• Key US economic data released last month saw inflationary pressures continuing to ease. Consumer prices in November 2023 rose by 3.1% YoY, compared to October’s 3.2% increase. 
• The Federal Reserve (Fed) held interest rates steady (target range of 5.0-5.25%) at its December meeting. The meeting minutes, released last week, appear to reaffirm the prospect of a turnaround in rates. Federal Open Market Committee (FOMC) members felt that “clear progress” had been made in the fight against inflation and that the federal funds rate was at or near its peak in this tightening cycle. Also, for the first time since June 2022, policymakers did not use the phrase “unacceptably high” to describe inflation. Fed fund futures data are showing a 50% probability (at time of writing) of a 25 bps rate cut at the May 2024 meeting.
• BTC correlations with other assets were mostly positive in the past 1-month, albeit at weak levels.

• BTC options implied volatilities (vols) rose on the front-end (1-week, 1-month) during December, while back-end vols (3-month, 6-month) remained relatively flat.

• Market-Neutral Pair Trader hunts for strongly correlated tokens and potential market-neutral pair trades.

• For the BTC vs. ETH pair, the price ratio (BTC price divided by ETH price) continues to be around the 2-standard deviation (SD) ceiling.

• Our style-factor screens track momentum, value, growth, and risk for the Layer-1 and Layer-2, DeFi, Gaming, and NFT categories. Below is the screen for selected top crypto tokens by market cap in the Layer-1 and Layer-2 category. Token prices all rose in December. OP and NEAR were the best performers.

• Our events section shows recent and upcoming events for selected tokens, as well as important macroeconomic events.

Read the full Alpha Navigator report: Alpha Navigator: Quest for Alpha [December 2023]

Author

Andrew Ho (Senior Research Analyst)

Research & Insights Team

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