“There are two main drivers of asset class returns — inflation and growth.” — — Ray Dalio
It has been a somewhat positive week for crypto markets, with most of the major coins recovering some of their mid-January losses.
We mentioned last week that there has been an increased optimism in crypto markets despite geopolitical and inflation fears looming in the minds of most rational investors. As the reality of upcoming monetary policies (that will combat inflation) becomes accepted by investors, there is an expectation that larger institutional investors could deploy crypto assets as a means of portfolio diversification. In a recent survey, close to 80% of institutional investors had a positive or favorable outlook for crypto as an investment vehicle based on its strong capital growth and diversification benefits. One major trend underpinning this theme is the rapid change in the acceptance of digital assets across both traditional finance and government institutions around the globe. In the minds of most retail and institutional investors, crypto has grown from a purely speculative tool into an asset class driven by economic utility.
As the investor demographic in crypto continues to widen, we expect to see more growth and structure in the markets. The days of crypto assets being viewed as purely exotic financial assets with outsized volatility seem to be gradually ending. While it is still unclear what particular strategies will be deployed by government institutions to control rising inflation, the element of surprise around this action does not appear to be an ongoing risk factor that could lead to an extended crypto winter.
This week’s takeaways:
- The Crypto Volatility Index (CVI) was a lot calmer on a week-over-week basis
- BTC and major altcoins have held steady against increased global uncertainty compared to global equities and fixed income assets
- The CVI has remained below 80 since January 28th, 2022
Market Movements
Crypto markets were a lot less volatile in the aftermath of the news that U.S. inflation reached a 40-year high. Bitcoin was down by -0.85% on a week-over-week basis compared to Ethereum, which saw about -3.5% on the back of this news. Contrasting this with the major stock indices, the 5-day returns across this period, the NASDAQ & S&P500 saw -2.53% and -2.45%, respectively.
Looking ahead — as geopolitical tensions continue to subside, regulatory frameworks around crypto markets remain a pending issue that could see some increased volatility sentiment. Against this regulatory risk, we encourage investors to utilize the CVI as a tool to monitor the crypto market’s expectations of future volatility.
Volatility Index
The CVI Index was mostly flat over the week, maintaining a floor in the 70 range and an upper bound of 77. Following the news of the CPI numbers, there was minimal run-up on volatility sentiment across both the CVI & ETHVI.
The ETHVI has also seen a 10% decrease in future volatility sentiment this week, going from a value of 86 to 77 in the span of a few days.
While it’s still early to claim crypto’s outperformance against traditional financial assets, there is no doubt that the importance of crypto as a means of trade and store of value has been highlighted multiple times over the past few days. As institutional investors explore crypto assets en-masse, retail investors should continue to utilize portfolio hedging, volatility tokens, and other innovative crypto trading strategies we have highlighted in their portfolios — this will ensure they remain competitive in today’s highly automated markets.
A few things that have happened this week
- COTI released a timeline of events for Djed’s development — learn more.
- One of the largest crypto deals in sports was signed this week — more info here.
For all of our updates and to join the conversation, be sure to check out CVI channels:
Website: https://cvi.finance
Whitepaper: https://cvi.finance/files/cvi-white-paper.pdf
Twitter: https://twitter.com/official_CVI
Telegram (group): https://t.me/cviofficial
Telegram (channel): https://t.me/cvichannel
Discord: https://discord.gg/48K9EupjqY
