Alpha Navigator: Quest for Alpha [May 2022]

Alpha Navigator, our institutional-focused report that covers macro trends, market-neutral pair trades, style factor screening, thematic baskets, event driven ideas, and market insights.

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Executive Summary

• Commodities were the best performing asset class again in May 2022, returning 4.6%. U.S. Treasury Bonds, Gold and REITs were all down. BTC and ETH were the worst performers, dropping 20.1% and 31.9% respectively. 

• The current crypto drawdown is largely driven by U.S. rate hikes and UST depeg, marking the 4th worst drawdown in BTC history at 63%. If history is any guide, a 70% drawdown = BTC at US$20.7K, and an 80% drawdown = BTC at US$13.8K. Crypto and Tech stocks are the two risk asset classes likely to bear the brunt of continuing monetary and financial conditions tightening – how much of that is already priced in will be top of mind for investors.

• The market anticipates U.S. sequential rate hikes in 2022: On 15 Jun 2022, a 50bps rate hike is expected to be implemented. By the end of 2022, the interest rate is expected to reach 2.75%.

• Market-Neutral Pair Trader hunts for strongly correlated tokens whose price ratios currently deviate from historical averages. We highlight one of these pairs, BTC vs. ETH, below. Due to BTC’s outperformance versus ETH, the BTC/ETH price ratio is currently at a peak.

• Given the continued risk-off mode in markets, we refresh our Drawdown Outperformers screen, which identifies tokens that are outperforming ETH in the current drawdown. 

Read the full report: Alpha Navigator [May 2022]