Crypto Market Intelligence – May 2023
Key Takeaways
Chart of the Month
Performance Review
Cryptoassets posted a negative performance in May mainly due to the congestion of the Bitcoin network that had increased risk aversion among users and investors. Since the issue was more specific to Bitcoin, Ethereum managed to outperform by almost +700 bps in May.
Performance dispersion among cryptoassets continued to pick up significantly during the last month. An increase in dispersion means that cryptoasset performances are increasingly driven by coin-specific factors in contrast to systematic factors. This was also accompanied by an increase in altcoin outperformance vis-à-vis Bitcoin. In the month of May, 30% of our tracked altcoins managed to outperform Bitcoin.
In general, among the top 10 major cryptoassets, TRON, XRP, and Litecoin have been the main outperformers. TRON was buoyed by the prospect that Hong Kong retail investors will be allowed to trade on its affiliated exchange Huobi. XRP was supported by positive expectations for the outcome of the ongoing trial against the SEC. Litecoin was mainly supported by a surge in network activity that appears to be related to the upcoming halving in early August.
Likewise, our own passive DDA products have performed accordingly in May:
Furthermore, the markets were erratic in May, with no real trend and a marked compression in volatility. This was a complicated environment for our active strategies, which suffered slightly.
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Traditional financial assets mostly went sideways during May. German Bunds outperformed the S&P 500 while the Dollar advanced. Risky assets were mostly held down by the fact that the Fed delivered another rate hike at the beginning of May and continued to deliver a rather hawkish forward guidance.
However, there were significant divergences beneath the surface in the stock market as some mega-cap stocks such as Nvidia managed to rally to multi-year highs on the back of the recent AI euphoria. At the same time, overall market breadth in the US stock market remains very thin.
Bottom Line: Cryptoassets posted a negative performance in May mainly due to the congestion of the Bitcoin network that had increased risk aversion among users and investors. Ethereum significantly outperformed Bitcoin while general altcoin outperformance has started to pick up from lower levels.
Macro & Markets Commentary
The debt ceiling relief seems to have served as a positive catalyst for now. Last week, US lawmakers agreed on extending the debt limit by approximately 4 trn USD to ~35.4 trn USD until approximately January 2025 und submitted to (only) about 50 bn USD in spending cuts.
The US government currently pays 76 bn USD per month (912 bn USD per annum) on interest expenses alone. That is more than the annual expenses on social security and the military. So, interest expenses are already the biggest financial item in the US government’s expenditures.
At the same time, the US federal government is running an annual budget deficit to the tune of -1.94 trn USD per annum.
So, it is essentially a mathematical certainty that total debt will continue to increase in the future.
In fact, according to their latest estimates, the Congressional Budget Office (CBO) expects Federal Debt held by the public (which excludes intergovernmental liabilities) to reach 118% of GDP in 2033 and 195% in 2053, up from 97% of GDP at the end of 2022:
Another recession in the US is most-likely going to accelerate this increase in Debt-to-GDP levels as recessions are usually a double-whammy for this ratio due to rising government expenditures for stimuli and social security, and falling government revenues via taxes.
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