Crypto Index Tracker: Smart Contracts Lead the Pack as Crypto Indexes See Green

Inflation data took the spotlight this week with June CPI surprising on the downside. Bitcoin reacted with immediate volatility that saw it almost breach $31,000 before giving back most of those gains on Wednesday. Moreover, yesterday’s soft US PPI data added to volatility with bitcoin briefly testing $32,000 before settling at around $31,150.

June CPI surprised to the downside but added little to deflation trends. Headline inflation at 3% reflects base effects and a 17% YoY decline in energy prices and while core goods prices were flat for the third month in a row, structural changes underway in the US and globally suggest this is unlikely to last. Moreover, shelter inflation remains high amid increasing rental indices such as Zillow or apartment list.

Elsewhere, Ripple Labs scored a victory in the SEC case against them. US District Judge Analisa Torres decided partially in favour of Ripple Labs, ruling that XRP is not a security when being sold on digital asset exchanges.

We expect the Federal Reserve (Fed) to hike twice more this year. The data is consistent with a Fed hike this month and longer-term Dominique believes it does not give a clear enough disinflation signal for the Fed to abandon its plans for a second rate hike in this year.

Performance of Our Indices

This week, four of our five indices are in the green with our Smart Contract Index (+15.1% WoW) up the most and our Privacy Index (-0.9% WoW) the only one that is in the red.

Our Metaverse Index is most correlated to our Bitcoin Index (+80%) followed by our Smart Contract Index (+73%; Chart 3). The relationship between our Bitcoin Index and our DeFi Index (+53%) and Privacy Index (+43%, Chart 3) has weakened.

Negative macro correlations intensify with bitcoin most negatively correlated with the S&P 500 (-56%) and the NASDAQ (-52%). The correlations also remain negative with gold (-41%), brent crude oil (-30%) and US 10Y yields (-19%, Chart 4).

• Smart Contract Platform Index: The largest gain of the week is found in this index; Solana (SOL) has returned +29.3% WoW. Meanwhile, Terra Luna Classic (LUNC; +7.5% WoW) is up the least in this index. Ethereum is up +8% WoW.
  
• DeFi Index: Compound (COMP; +21.7% WoW) is up them most while Maker (MKR; -4.9% WoW) is the only cryptocurrency that is down.
  
• Metaverse Index: Decentraland (MANA; +17.9% WoW) is up the most while Phantasma (SOUL; -8.1% WoW) is the only cryptocurrency that is down.
  
• Privacy Index: Dusk Network (DUSK; +20.5% WoW) is up the most while Verge (XVG; -26.7% WoW) is down the most.
  
• Bitcoin Index: this is up +4.9% WoW.

What Are in the Four Indices?

Here are the indices in more detail:

• Bitcoin: the OG of crypto markets deserves its own category and is in many ways the true benchmark for any other crypto market.

• Smart contract platforms: after bitcoin, the big innovation was to have blockchains that were more programmable. These could host smart contracts or decentralised applications and have allowed the emergence of the metaverse and defi. Ethereum (ETH) is the most popular version of a smart contract platform. As well as ethereum, we also include some key competitors. The constituents of this index are: Ethereum (ETH), Cardano (ADA), Avalanche (AVAX), Solana (SOL), Fantom (FTM), VeChain (VET), Terra (LUNA), EOS (EOS), and Chainlink (LINK). We also include Polkadot (DOT) which allows interoperability between blockchains and the use of smart contracts via parachains.

• Metaverse: coins associated with the creation of a virtual space/digital world on the internet using a combination of augmented reality, virtual reality, and social networks. The constituents of this index are Axie Infinity (AXS), The Sandbox (SAND), Decentraland (MANA), Enjin Coin (ENJ), Aavegotchi (GHST), Terra Virtua Kolect (TVK), Ultra (UOS), Phantasma (SOUL), RedFOX Labs (RFOX), and Gala (GALA).

• Decentralised Finance (DeFi): financial services built on top of blockchain networks with no central intermediaries. This can be a broad category, so we narrow this down to platforms that focus on lending/borrowing, yield farming, automated market making and decentralised exchange tokens. The constituents of this index are: Aave (AAVE), Compound (COMP), Uniswap (UNI), Yearn.finance (YFI), Loopring (LRC), PancakeSwap (CAKE), Maker (MKR), 1inch (1INCH), Thorchain (RUNE), and Terra (LUNA).

• Privacy Coins: coins that obscure transactions on the blockchain to maintain the anonymity of its users and their activity. The constituents of this index are Monero (XMR), Zcash (ZEC), Dash (DASH), Verge (XVG), Horizen (ZEN), Beam (BEAM), Secret (SCRT), Decred (DCR), Keep Network (KEEP), and Dusk Network (DUSK).

Dalvir Mandara is a Quantitative Researcher at Macro Hive. Dalvir has a BSc Mathematics and Computer Science and an MSc Mathematical Finance both from the University of Birmingham. His areas of interest are in the applications of machine learning, deep learning and alternative data for predictive modelling of financial markets.

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(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)