Alpha Navigator: Quest for Alpha [January 2023]

Crypto outperforms other asset classes in January by a large margin. BTC options put-call ratio at a yearly low, implying shift to positive sentiment.

Feb 07, 2023
Alpha Navigator Institutional Report

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Executive Summary

  • Risk assets rose across the board in January, with crypto ahead of the pack by a significant margin. Longer term, most asset classes are still in drawdown (except for gold and commodities), as seen in the 12-month performances.
Price Performance
  • The U.S. Federal Reserve raised interest rates by 25 bps to a target range of 4.5%-4.75%, in line with market expectations. Investors latched onto Fed Chairman Jerome Powell’s acknowledgement that the “disinflationary process” had started, in light of the recent slowing pace of monthly inflation data. Markets reacted positively, as some observers interpreted the comments as a signal that the central bank’s battle with inflation might be nearing an end. However, Powell also emphasised the need for substantially more evidence to be confident that inflation is on a sustained downward path.
  • Across the pond, inflation in the Euro area slowed in January for the third consecutive month, reaching 8.5%. Lower energy prices were the main driver of the slower price increase. The European Central Bank (ECB) tightened interest rates by 50 bps, bringing the main refinancing rate to 3.0%. In the U.K., the Bank of England (BoE) also raised rates by 50 bps to 4.0%.
  • BTC’s correlations with other risk assets are in positive territory across almost all time frames shown.
BTC Price Correlation
  • The BTC options put-call ratio is hovering around a yearly low, implying a shift to more positive sentiment.
Options Open Interest Put Call Ratios
  • 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 BTC vs. ETH pair, the price ratio (BTC price divided by ETH price) continues to be at the historical average. Ethereum’s Shanghai upgrade, estimated to be in March, is a potential catalyst that remains in play. A public testnet will be live in February.
Btc Eth Price Ratio 1
  • Our style-factor screens track momentum, value, growth, and risk for crypto tokens in the Layers 1 & 2, DeFi, GameFi, and NFT categories. Below is the screen for selected top crypto tokens by market cap in the Layers 1 & 2 category. Layers 1 & 2 tokens showed positive 1-month price momentum and TVL growth across the board. Solana (SOL) was a top price performer.
6 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 [January 2023]


Andrew Ho (Senior Research Analyst)

Research and Insights team

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