Why should we continue to track US stocks as an important monitoring of cryptocurrencies:
1. Looking back at the data, except for special event trends (such as ETH's Defi Summer, ETF approval and other major events), cryptocurrencies, as a large risk asset category, will have fewer and fewer independent trends, especially after institutional intervention. For example, the trends of ETH and IWM are mostly the same (Figure 1), and the correlation is gradually increasing. Claude calculated the correlation coefficient for me to be between 0.6-0.8.
2. Shanzhai must benefit from the increase in risk appetite and then usher in Shanzhai season. In addition to the Greed and Fear Index, the best measure of risk appetite is still to look at the risk appetite of US stocks.
3. How to measure the market's risk appetite, the main indicators:
1) VIX index, which measures the implied volatility of S&P 500 options, directly reflects whether the market's risk aversion is increasing in the short term.
2) HY Spread: The yield spread between junk bonds and US10Y Treasury bonds. When the spread narrows, it indicates that funds are chasing high-risk assets and risk appetite is increasing.
3) ERP: Equity risk premium, which measures the difference between the expected return of stocks and the yield of US10y Treasury bonds. If you want to make a simple calculation, you can directly use the inverse of the forward PE and the Treasury yield to estimate (see Figure 2).
4) US dollar index: Usually, a stronger dollar means risk aversion, which is not conducive to risky assets; but it should be distinguished whether this strengthening is the relative strength of economic fundamentals or real risk aversion. If it is the former, it will not significantly suppress risk appetite.
5) The trend of US stock industry sectors, cyclical or defensive; growth or value.
6) Market sentiment indicators, such as option ratio, retail investor confidence, and CNN greed and fear.
The above indicators are both long and short, such as VIX is short, HYSpread and ERP are medium and long. If you summarize it, it is nothing more than looking at: volatility, credit spreads, stock and bond risk premiums, market sentiment, and capital flows.
By jointly monitoring changes, we can see marginal changes in risk preferences, which plays an important role in judging ETH and even the altcoin season.
