Crypto Index Tracker: Ethereum Outperforms on Successful Shapella Upgrade



This week, the crypto market has surged, fuelled by the March headline CPI slowdown and the market’s anticipation of c.75bps of rate cuts by end-2023. Moreover, ethereum has outpaced bitcoin since the successful Shapella upgrade on Wednesday. ETH/BTC is up +3.6% today, trading a touch under 0.07.

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This week, the crypto market has surged, fuelled by the March headline CPI slowdown and the market’s anticipation of c.75bps of rate cuts by end-2023. Moreover, ethereum has outpaced bitcoin since the successful Shapella upgrade on Wednesday. ETH/BTC is up +3.6% today, trading a touch under 0.07.

The Shapella upgrade was successful. The upgrade means that the ethereum network is can process withdrawal requests thereby enabling validators to pull out their staking rewards.

Liquid staking protocols have rallied. Ethereum is not the only cryptocurrency to benefit from positive sentiment associated with the successful upgrade. Lido Staked Ether (STETH) now sits in the top ten cryptocurrencies by market cap; STETH saw its market cap soar to all-time highs of around $12.5bn, having surpassed that of coins like Polygon, Polkadot and Solana.

The macro backdrop. Wednesday’s CPI data, and Fed commercial bank balance sheets data, backed market pricing (70%) of a rate hike at the 3 May FOMC meeting. However, markets have priced in c.75bps of cuts between May and end-2023 – Dominique disagrees. Looking into the CPI components, she finds that March CPI showed no incremental progress on disinflation as a smaller decrease in used car prices offset a slower increase in shelter costs.

Performance of Our Indices

This week, all our crypto indices are in the green, led by our Bitcoin Index (+8% WoW). All other indices are up between +2% and +7% each (Chart 2).

Our Smart Contract Index is most correlated to our Bitcoin Index (+85%). Meanwhile, our DeFi and Privacy indices are correlated around +80% to our Bitcoin Index. Our Metaverse Index is correlated the least (+75%; Chart 3).

Equity correlations returned. Our Bitcoin Index is now +45% correlated to the NASDAQ and +35% correlated to the S&P 500, from 0% and -7% last month (Chart 4).Meanwhile, its correlation to gold (+28%, last month: +9%) also increased relative to last month. Bitcoin’s correlation with 10Y yields and oil changed insignificantly relative to the same time last month.

Smart Contract Platform Index: All coins are up. Solana (SOL) is up the most (+19% WoW) while Terra Luna Classic (LUNC) is up the least (+2% WoW). Ethereum (ETH) is up +8% WoW.
DeFi Index: Yearn Finance (YFI) is up the most(+7% WoW) while PancakeSwap (CAKE) is the only coin that is down (-1% WoW).
Metaverse Index: Gala (GALA) is up the most (+7% WoW) while Phantasma (SOUL) is down the most (-9% WoW).
Privacy Index: Zcash (ZEC) is up the most (+10% WoW) while Beam (BEAM) is down the most (-6% WoW).
Bitcoin Index: is up +8% 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), (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.)

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