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Executive Summary
- Risk assets mostly rose in March, with BTC ahead of the pack by a significant margin, followed by ETH.
- Banking sector turmoil took centre stage in March, starting with the failure of Silicon Valley Bank in the US before being quickly followed by Credit Suisse (a designated global systemically important bank). Despite this, the US Federal Reserve (Fed) pressed ahead with a 25 bps interest rate increase to a target range of 4.75%- 5.00% on 22 March.
- In its press release, the Fed said it “anticipates that some additional policy firming may be appropriate”, which represents a subtle shift in language from the prior release where it said they expected “ongoing increases”. The next interest rate decision is on 3 May and the market is currently expecting a pause (compared to predictions of another 25 bps hike just a month ago). That is because financial stability risks are in focus, which the Fed now has to balance with the ongoing objective of taming inflation. The US CPI print for Feb came in at a 6% increase YoY, a slower pace than Jan’s 6.4% YoY rise, but still well above the Fed’s policy target of 2%. The next CPI print will be on 12 April and key jobs data (non-farm payrolls) is on 7 April.
- Amid the banking crisis, Bitcoin is outperforming other major asset classes, with its alternative financial system narrative perhaps a factor behind the relative strength. From a macro perspective, any fracturing of the current rate hike cycle given the financial instability risks could provide a new tailwind for risk assets.
- BTC’s short-term, 1-month correlations with equities continue to be weak (following negative correlations in Feb), with the exception of the tech-heavy NASDAQ 100.
- Latest available data from CME shows leveraged traders net short position in BTC futures increased (i.e., became more negative) over the past month.
- 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).
- For the BTC vs. ETH pair, this has played out in BTC’s favour since our last issue, as the price ratio (BTC price divided by ETH price) rose and is now at the 1-standard deviation (SD) ceiling band. Ethereum’s Shanghai upgrade now has a target date of 12 April. A Swiss nonprofit called the ZeroSync Association aims to help scale Bitcoin by using zero-knowledge proofs.
- Our style-factor screens track momentum, value, growth, and risk for crypto tokens in the Layer-1 and Layer-2, DeFi, GameFi, and NFT categories. Below is the screen for selected top crypto tokens by market cap in the Layer-1 and Layer-2 category. Layer-1 and Layer-2 tokens were mostly down on price performance in March, although ETH bucked the trend and was up +9.9%.
- Our event driven section shows recent and upcoming catalysts for selected tokens, as well as crypto-related conferences and important macroeconomic events.
Read the full Alpha Navigator report: Alpha Navigator [March 2023]
Author
Andrew Ho (Senior Research Analyst)
Research and Insights team
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