Alpha Navigator: Quest for Alpha [August 2022]

Risk assets suffered in August, with crypto the worst performer. The probability of stronger interest rate hikes is rising. Market-neutral pair trades and factor screens.

Research Disclaimer

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Executive Summary

• Markets were firmly in the grip of interest rate hike fears in August, with only Commodities managing to eke out a slight gain. BTC was the worst performer, down -14.75%, while ETH fared relatively better at -9.77% given positive developments around The Merge event.

• Market sentiment was buoyed by a lower than expected U.S. inflation print in early August and hopes that rate hikes would be slowed. However, this was quickly dampened by Fed Chairman Powell’s speech at Jackson Hole, in which he warned of “some pain” to come for the economy. Now all eyes are on the European Central Bank to also send a clear signal with another rate step (decision on 8 September).

• While the Ethereum Merge (expected in mid-September) could be considered a positive idiosyncratic catalyst for crypto, it could also potentially be a sell the news event, and some signals from the derivatives markets are implying caution.
• We highlight BTC vs. ETH in our Market-Neutral Pair Trader section. This trade has been playing out since our previous issue of Alpha Navigator. The price ratio (BTC price divided by ETH price) has been driven down (to the 1-standard deviation floor band), due to ETH’s outperformance on the back of positive developments in The Merge. The key question then is, has it been largely priced in already?

• We refresh our style-factor screens, which attempt to track momentum, value, growth, and risk. Below we highlight our style-factor screen for the top tokens by market cap in the Layers 1 & 2 category. ATOM was the only token to post a positive 1-month performance at +2.1%.

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

Author

Andrew Ho (Senior Research Analyst)

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