Came across this really cool magnetic encoder from from Austria Micro Sytems (AMS).
https://www.ams.com/eng/Products/Position-Sensors/Magnetic-Rotary-Position-Sensors/AS5601
Provided up to 2048 counts per rev (cpr) over quadrature (A,B) and up to 12 bit resolution (4096?) over i2C. The price is just $1.65 (in qty 1000). Too good to be true?
Here is the block diagram of the same.. looks like it can run from 3.3v