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Rotation Within Coindesk Market Index Sectors Bears Similarities to Tradfi Trend

Facebook iconLinkedin iconTwitter iconRotation (Caleb Woods/Unsplash)

Crypto traders are rotating their positions. (Caleb Woods/Unsplash)

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Money is searching for quality in both traditional and digital assets, as investors appear to favor safety above all for right now.

CoinDesk Indices (CDI) data shows the Currency Select Index (CCYS), anchored by bitcoin (BTC), and the Smart Contract Platform Index (SCPX), anchored by ether (ETH), outperforming other select sectors within the CMI universe.

CMI sectors represent comprehensive groupings of digital assets by sector, allowing for measurement of performance and a comparison.

What today’s data shows is that, similar to in past market cycles, flights to safety within the cryptosphere is translating to movement of capital into BTC and ETH, relative to other coins.

On the other end of the spectrum, the more speculative Computing Index (CPU) and Culture & Entertainment (CNE) have lagged other sectors in both week to date and month to date performance.

CoinDesk - Unknown

Coindesk Indices 12/20/22 (Coindesk)

The rotation of capital from perceived risk to perceived safety in crypto markets is occurring in conjunction with similar flows within traditional finance.

Relative Rotation Graphs (RRG), a tool developed by Julius de Kempanaer, allows for assets to be tracked versus a selected benchmark. Assets are subsequently separated into four distinct quadrants.

  1. Leading: High relative performance and momentum
  2. Weakening: Strong relative performance and slowing momentum
  3. Lagging: Weak relative performance and momentum
  4. Improving: Weak relative performance but increasing momentum

We compared the following 7 SPDR ETF’s using the S&P 500 as the benchmark.

  1. XLE: Energy Select
  2. XLY: Consumer Discretionary
  3. XLF: Financials
  4. XLV: Healthcare
  5. XLU: Utilities
  6. XLP: Consumer Staples
  7. XLK: Technology

Defensive sectors such as consumer staples, healthcare and utilities lead the S&P 500 currently. The more speculative consumer discretionary and technology sectors are lagging and weakening versus the benchmark.

The similar behavior among investors in the two asset classes implies that everyone is choosing safety at the moment.

For those who prefer traditional equities, that translates to utilities, healthcare, and consumer staples. For those who prefer traditional assets, the assets of choice are bitcoin and ether.

Interestingly, adding bitcoin and ether to the same RRG, shows that they both fall into the leading quadrant as well.

This appears counterintuitive, as you would be hard pressed to find someone who would place cryptocurrencies within the same risk bucket as healthcare stocks.

But the landscape of markets is ever-changing. And in today’s environment, investors looking for safety in both crypto and traditional equities have landed within the same area.

CoinDesk - Unknown

Relative Rotation Graph (Optuma)


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