Alpha Navigator: Quest for Alpha [September 2022]

Crypto outperforming since the recent Fed interest rate hike. ETH derivatives maybe indicating less caution with The Merge now in the rearview mirror. Some Layer-1 tokens show strong price momentum.

Research Disclaimer

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Executive Summary

• Macro headwinds show no signs of abating as the main theme in Sep was again interest rate hikes, driving all risk assets down across the board. Crypto outperformed equities. BTC was the best relative performer, down -1.09%. ETH dropped -6.86%, as The Merge failed to act as a price catalyst in Sep.

• Gloves appear to be off for central banks (at least Western ones) in their fight against inflation. The Fed hiked rates again by 75 bps (on 21 Sep) and communicated that current conditions are not restrictive enough and it is willing to accept collateral economic damage. Across the pond, the European Central Bank (ECB) also followed with a record 75 bps increase. Risk assets, crypto included, could remain subdued for the time being given central banks’ hawkish stances and geopolitical tensions (e.g. U.S.-China, kinetic conflict in Europe).

• However, we are seeing a bit of a grind higher for BTC after the Fed hike. BTC, and ETH to a lesser extent, has outperformed equities, gold, and U.S. treasury bonds since then.

• BTC’s 1-month correlation of 0.79 with ETH has come down compared to in August, when the correlation was 0.92. In Sep, The Merge was an idiosyncratic factor for ETH specifically, and intensifying risk-off sentiment from macro headwinds might also have favoured BTC over ETH for some, potentially causing the two largest crypto coins to move less in lockstep.

• While ETH perpetual futures funding rates are still negative (a streak that has continued for nearly 2 months), they have been trending upwards toward neutral territory since mid-Sep (the date of The Merge), as hedges and/or outright bets against the event have perhaps been withdrawn.

• The put-call ratio for ETH has marked a yearly low, potentially implying a shift toward less caution, with any uncertainty associated with The Merge now in the rearview mirror.

• Our style-factor screens track momentum, value, growth, and risk for crypto tokens in the Layers 1 & 2, DeFi, GameFi, and NFT categories. Below we highlight our style-factor screen for the top crypto tokens by market cap in the Layers 1 & 2 category. ATOM continues to show strong price momentum. Cosmos Hub recently released a new white paper for ATOM 2.0. It details a revamped role for the Hub to be used by other chains to secure their own networks, and proposes changes to token utility and issuance schedule.

Read the full Alpha Navigator report: Alpha Navigator [September 2022]

Authors

Andrew Ho (Senior Research Analyst)

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