Crypto Stories: Whales, Bull Markets & Indicators!
in Bitfinex Pulse
In a new series of interviews, we will be talking to some of the companies and merchants operating on Bitfinex Pulse. In our first interview, we are delighted to join the conversation Santiment. In their own words, Santiment creates “Tools to help you analyze the crypto market and find data-driven investment opportunities”
They give us insight into the markets and how to best use their platform to leverage data in your trading.
Why did you make Santiment and what are your main goals?
Dino: “The main reason why we were founded Santiment back in 2017 is that we believed – as we still do – that price data in crypto is extremely unreliable. Unfortunately, wash-trading, pump-and-dump groups, whale manipulation are all alive and well in 2020, contributing to increasingly skewed information about what’s really going on in the market.
Therefore, our main goal is to discover and develop additional sources of information about the cryptocurrency markets so that we can provide more context for the actual behavior of all relevant stakeholders.
What distinguishes the traditional financial instruments in terms of cryptocurrency valuation methods?
Dino: “There is a huge gap between stocks and digital assets in valuation methods.
First, it is virtually impossible to directly replicate many of the common stock valuation methods. Take the classic price-to-earnings ratio (or P / E) ratio, for example, where you divide the company’s current market price by its current earnings per share to measure a stock’s potential.
This is clearly impossible to do in crypto – Bitcoin is not a business, so there is no ‘income’ to calculate such a ratio. However, Since Bitcoin is a payment / store-of-value network, we can use the value flowing through the network (on-chain transaction volume) as a surrogate for ‘corporate profits’. So we can still create a modified version of the P / E ratio for crypto – which is commonly referred to as the Network Value to Transactions (NVT) ratio.
On the other hand, blockchain’s innate transparency allows us to create many completely new valuation methods that would be impossible in traditional finance. Statistics such as the MVRV ratio, which calculates the average gain or loss of a particular group of holders based on when their addresses initially acquired tokens.
This technology is so young that we are still discovering brand new ways to both understand and assess token networks. “
What unique indicators have you developed over the years?
Dino: “Instead of price-based metrics, our indicators mainly rely on on-chain data, social media data and information about development activities. So far we have created 150+ indicators using these information sources, most of which are currently available on Sanbase (http://app.santiment.net/), our main platform. “
In addition to providing statistics that people are already familiar with (such as daily active addresses or transaction volume in the chain) on our site, we have also developed many new indicators and strategies ‘in-house’ over the past 3 years.
For example, one of the indicators that shows promise is our social volume metric, which tracks the number of coin-specific listings on over 1,000 crypto-related social channels. What we found is that extreme social volumes – especially during a price increase – very often point to local price caps and short-term corrections.
We recently ran some back tests on this as well – in 200 cases where the social volume of the coins soared to extreme levels, their price has dropped 8.2% on average over the next two weeks. Fairly strong findings, and on a significant sample size. “
If we were to switch to a bull market, what are some of your indicators that Bitfinex users should keep an eye on?
Dino: “It’s all about following the behavior of relevant market parties. For example, what are Bitcoin (or Ethereum) whales up to? Do they continue to accumulate or do they start moving their bags, possibly to fairs to sell? For this purpose, we have built several ‘Holder Distribution’ metrics that allow users to track the behavior of different holding cohorts, from the retail investor to the largest whales.
Bitfinex users should also keep a close eye on the behavior of long-term holders and ‘new money’ respectively. One metric that can help Bitfinex users with this is the time-bound MVRV, which measures the average ROI of all addresses that have acquired, for example, Bitcoin within a given time. Analyzing this metric historically can reveal at what profit levels different BTC holders often start to exit and cash in their positions.
The list is endless, of course. “
What type of metrics do you rely on to determine the overall health of a digital token?
Dino: “Personally, I would like to watch it daily (all available on Santiment of course):
1. Daily active addresses + network growth (new addresses created on the network) – not perfect statistics, but still very good on-chain proxies of network activity and adoption over time. In the short term, these statistics can often point to strong reversals in price development, but in the long run they reveal a lot about the network’s appeal and sustainability.
2. On-chain transaction volume + token circulation – how much value is actually being sent over the network and what are the long-term trends? I also like to compare the transaction volume in the chain (all tokens involved in daily transactions) with the token circulation (which only counts unique coins involved in daily transactions) to check if the transaction volume numbers can be artificially increased.
3. Social sentiment – this is different from just the sheer amount of coins. What is the crowd mood about a particular currency? We have developed our own sentimental algorithm that analyzes whether the public is bullish, bearish, or ambivalent about a currency’s outlook. When the public is super bullish about a coin, I usually bet on it short term. “
How can Bitfinex users incorporate Santiment’s data into their trading strategies?
Dino: “All our statistics, strategies and tutorials are available on app.santiment.netHowever, Bitfinex users can also access some of our most popular stats right on the Bitfinex platform!
The trading page of each coin on Bitfinex bears the Santiment logo (the letter ‘S’ with two black dots on each side) next to the asset’s price. Clicking on the logo will open a new page with some of our social, on-chain and development activity statistics – available at a discount.
These metrics are a collection of some of our most popular indicators, including social volume, daily addresses, in-chain transaction volume, MVRV ratio and much more. If users want to get a ‘second opinion’ before making any of their Bitfinex trades, I highly recommend trying them out for a month. “
Go to the official one to get 25% off Santiment Pro Bitfinex Pulse and check out our Santiment post to grab the code