Alpha Navigator: Quest for Alpha [December 2022]

The new year sees crypto outperforming equities and gold. BTC options implied volatilities are subdued while perpetual futures funding rates are positive.

Jan 10, 2023
Alpha Navigator Institutional Report

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Executive Summary

  • Risk assets struggled in 2022 amid macro headwinds such as interest rate hikes, the conflict in Europe, continued supply chain disruptions, and the lingering effects of the pandemic. Commodities, driven by oil, was the only asset class that rose.
Price Performance
  • However, although crypto is still dealing with the ripple effects of recent industry events, which is potentially not fully played out yet, BTC and ETH have started the new year relatively strongly, outperforming equities and gold (at the time of writing).
New Year Crypto Outperforming Out Of The Gates
  • Well-known macro risks from 2022 are still firmly in focus. Monetary policy remains restrictive and inflation is high, while U.S. recession risk is elevated. The FOMC minutes released on 4 Jan emphasised that any slowing in the pace of rate hikes should not be construed as a weakening of resolve to bring down inflation. The next Fed interest rate decision is on 1 Feb and the U.S. CPI print is on 12 Jan. 
  • BTC’s short-term (1-month) correlations with other risk assets are back into positive territory after November’s dip into significantly negative correlations.
Btc Price Correlation
  • Options implied volatilities (vols) start the new year at subdued levels, in-line with a market experiencing a general lull in trading activity.
Btc Options Atm Implied Volatility Subdued
  • BTC perpetual futures funding rates have been printing positive since mid-December, potentially indicating a shift to predominantly long positioning.
Btc Perpetual Futures Funding Rate
  • Market-Neutral Pair Trader hunts for strongly correlated tokens. Such pairs with price ratios that deviate from historical averages can be considered candidates for a market-neutral pair trade (i.e., long the underperforming token and short the outperforming token, with equal dollar value positions in each token to enable market neutrality).
Price Correlations
  • We highlight the BTC vs. ETH pair below. The price ratio (BTC price divided by ETH price) is hovering around the historical average. A public testnet for Ethereum’s Shanghai upgrade is tentatively planned for February.
Btc Eth Price Ratio
  • 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 top crypto tokens by market cap in the Layers 1 & 2 category. ATOM was the only protocol to show positive TVL growth for December.
  • Our event driven section shows recent and upcoming catalysts for selected tokens, as well as crypto-related conferences and important macroeconomic events.
Event Driven

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


Andrew Ho (Senior Research Analyst)

Research & Insights Team

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