Alpha Navigator: Quest for Alpha [May 2023]

Asset classes mostly dipped in May and crypto remains the best performer YTD. US debt ceiling dispute defused. Interest rate decisions from multiple central banks in the coming month.

Jun 06, 2023
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Executive Summary

  • Risk assets generally dipped in May, although US equities bucked the trend on the back of the tech sector. As 2023 nears the halfway mark, crypto remains the best performing asset class YTD.
Price Performance
  • US President Joe Biden on Saturday signed a bill that suspends the government’s US$31.4 trillion debt ceiling, averting what would have been a first-ever default. Despite this, Fitch Ratings said the US’ “AAA” credit rating would remain on negative watch. The Federal Reserve’s routine economic report known as the ‘Beige Book’ recently released – key takeaways are that economic activity was little changed overall in the last two months while expectations for future growth deteriorated slightly.
  • Markets head into June facing interest rate decisions from multiple central banks. The Reserve Bank of Australia is first up on 6 June, followed in quick succession by the US Federal Reserve (14 June), the European Central Bank (15 June), the Bank of Japan (16 June), the People’s Bank of China (20 June), and the Bank of England (22 June). 
  • BTC’s 1-month correlation with equities turned negative, and notably its longer-term correlations are stronger with gold than with most of the equity indices.
BTC Price Correlation
  • ETH options implied volatilities (vols) continued to fall in May reaching new lows. The persistent muted implied vols are consistent with the currently directionless market, although quiet periods in the past have often preceded significant moves.
ETH Options ATM Implied Volatility
  • 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 1-Year
  • For the DOT vs. ADA pair, the price ratio (DOT price divided by ADA price) has been dropping since reaching a peak in April and is now near the 2-standard deviation (SD) floor. According to Polkadot’s recent Q1 2023 update, they have the most active developer community in Web3. Cardano announced the launch of Marlowe, a new smart contract creation tool set, on its mainnet.
DOT ADA Price Ratio
  • 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 mostly dropped in price during May. ATOM posted a significant growth in TVL of +163.2%.
Style Factor Screens
  • Our event driven section shows recent and upcoming catalysts for selected tokens, as well as crypto-related conferences and important macroeconomic events.
Event Driven Section

Read the full Alpha Navigator report Alpha Navigator: Quest for Alpha [May 2023]


Andrew Ho (Senior Research Analyst)

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