Hidden Figures​

Issue #4 – May 16, 2022

Behind the broad market selloff there is a less apparent but informative layer of information.

The steep price declines in bonds and equities exceed historical averages as shown below, but digital asset bellwethers BTC and ETH have yet to breach their longer run averages. This improving volatility profile for BTC and ETH is distinctive and not enjoyed by all assets.

Be it the greater adoption & hash rates for BTC discussed in our April 25th bulletin or the changing ETH environment discussed below, these asset prices are NOT swinging as widely as they have in the past.


Source: 3iQ Research. Data sourced from Bloomberg as of May 13, 2022. You cannot invest directly into an index.


Continuing this theme, we explore another metric that may speak to a shift in sentiment for the bellwether protocol, Ethereum in relation to Bitcoin.

Since 2016, the ETH/BTC ratio has increased over 3000%. From the last two Bitcoin halving events (July 9, 2016) and (May 11, 2020) as noted on the chart below, ETH had outperformed BTC during bull cycles. During bear cycles, typically ETH would underperform.


Source: 3iQ Research. Data sourced from Bloomberg, Etherscan.io as of May 13, 2022.


Strength in ETH has been notable since the most recent Bitcoin halving event on May 11, 2020.

During periods of low or declining market volatility, we would expect investors to move out the risk curve and embrace higher beta assets that often carry higher price volatility and lower liquidity. But that is NOT the environment we find ourselves in today, still we see an elevated ETH/ BTC ratio for such a period of volatility.

Today’s ETH/BTC ratio is now at the historical resistance of .08, well off the 2018 low of .03.

Whether it’s the anticipated shift to proof of stake, or a broader shift in how investors view ETH’s role in the digital asset ecosystem, the current ratio could be viewed as an outlier, and is worth monitoring.

In our opinion, this is less about BTC, and more about ETH demonstrating the resilience that was once the sole domain of BTC.

Source: 3iQ Research. Data sourced from Bloomberg, Etherscan.io as of May 13, 2022.


Source: 3iQ Research. Data sourced from Bloomberg as of May 13, 2022. You cannot invest directly into an index.


Where the high ETH/BTC ratio is unusual for a risk-off environment, the peak correlation of BTC to equities is usual, although at a new high.

The graph immediately above illustrates the more expected and episodic high correlation between BTC and US equities. Whatever the catalyst, when de-risking events occur, selling begets selling and correlations across assets approach 1 or negative 1.

So, yes, BTC is selling off with equities, even more so when compared to tech-heavy NASDAQ, where the correlation is at an all-time-high (ATH) of 73%.

However, we demonstrate that both BTC and ETH price action is weak in comparison to that of traditional assets. While still disappointing to see declines, the average volatility (graph at top of Bulletin) speaks to the maturation of select protocols. BTC demonstrated integrity (May 9th  Digital Asset Bulletin—Code is Law), manifests this integrity with a predictably lower supply of coins flowing to a growing network of validators measured in hash rate. For ETH, the improved volatility profile may be due to the planned consensus shift.

As investors contend with the current drawdown in BTC, assessing the drivers behind this improvement in relative volatility may help inform portfolio decisions.


Digital Asset Universe

Source: 3iQ Research. Data sourced from Coin.Dance, Etherscan.io as at May 13, 2022.


Dominance has mildly crept in favor of BTC since our last bulletin, with BTC at 45% and ETH at 20%. During prolonged bull markets, its dominance figure should naturally gravitate lower as alternatives are released and adopted by participants. In bear markets, these alternatives are the first to get culled. Aggressive short-term spikes in BTC dominance, in our view, should be a natural occurrence in a growing market.

Source: 3iQ Research. Data sourced from Coin.Dance, Etherscan.io as of May 13, 2022.


The alternative digital assets noted below expressed much greater losses this past week, in part due to their size, usability, and lower relative participation than those of their peers: BTC and ETH. Note ETHs relative underperformance to BTC upon its significant breach of $30,000 USD.


Source: 3iQ Research. Data sourced from Messari as of May 13, 2022. Figures expressed in USD unless otherwise stated. Past performance is not indicative of future results.


BTC is down relative to all assets over the past year, apart from ETH. BTC maintained positive 3Y and 5Y dominance.

This performance divide leads us straight to a single question: Will BTC and ETH follow their 3Y positive performance profile or maintain their more recent pattern of underperformance?

The metrics and analysis highlighting the integrity of BTC and improved performance profile of both BTC and ETH support the notion that past performance may very well be prologue.


Source: 3iQ Research. Data sourced from Bloomberg as of May 13, 2022. You cannot invest directly into an index. Past performance is not indicative of future results.

The breadth of losses across digital assets, Currencies, Equities, Rates and Commodities, save Gold, is particularly noteworthy for the 1M and 3M periods.


Volatility as G-4 plays catch up

Focusing on currencies, the low to mid-teens losses in G-4 currencies vs. the USD could widen if these protocols do not hike rates at the same rate as the Fed. Not surprising that the Yen is down the most among G-4, as it is less likely to raise rates. As rate hikes roll across the global Fiat system, more volatility may be expected as overnight funding markets shift and flows ensue.

Source: 3iQ Research. Data sourced from Bloomberg as of May 13, 2022. You cannot invest directly into an index. Past performance is not indicative of future results. 

Research Team

Mark Connors

Mark Connors

Head of Research

Herbert Zhang, CFA

Herbert Zhang, CFA

Director and Portfolio Manager

Connor Loewen

Connor Loewen

Cryptocurrency Analyst

Contact us: research@3iq.ca

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About 3iQ Corp.

Founded in 2012, 3iQ is Canada’s largest digital asset investment fund manager with more than C$1.5 billion in assets under management. 3iQ offers investors convenient and familiar investment products to gain exposure to digital assets. For more information about 3iQ and its digital asset investment funds, visit www.3iQ.ca or follow us on Twitter @3iQ_corp.

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Fred Pye

Frederick T. Pye


Frederick T. Pye is the Chairman, Chief Executive Officer and Director of 3iQ Corp. He is also the Chairman and Director of 3iQ Digital Holdings Inc. Mr. Pye is recognized for creating and promoting creative and unique investment products for the investment industry.

Mr. Pye has managed private client portfolios with Landry Investment Management and various other investment dealers. Prior to this Mr. Pye was Founder, President & Chief Executive Officer of Argentum Management and Research Corporation, a company dedicated to managing and distributing quantitative investment portfolios including the first long-short mutual fund in Canada.

He was also Senior Vice-President and National Sales Manager of Fidelity Investments Canada and an integral part of the team that saw assets rise from $80 million to over $7.5 billion in assets under management during his tenure. He also held various positions with Guardian Trust Company, which listed the first Gold, Silver and Platinum Certificates on the Montreal Exchange.

Mr. Pye obtained a Masters in Business Administration from Concordia University.