Crypto Stories: Whales, bull markets and indicators!
at Bitfinex Pulse
In a new series of interviews, we’ll talk to some of the companies and traders active on Bitfinex Pulse. In our first interview, we are excited to talk to Santiment. In their own words, Santiment creates “Tools to help you analyze the crypto market and find data-driven investment opportunities”
They give us insights into the markets and how to best use their platform to leverage data while trading.
Why did you create Santiment and what are your main goals?
Dino: “The main reason why we set up Santiment back in 2017 is because we believe – as we still do – that pricing data in crypto is extremely unreliable. Sadly, washing, pumping and dumping, whale handling trade groups are all still alive and well in 2020, and contributing to an increasingly skewed knowledge of what is actually happening in the market.
That is why our primary goal is to find and develop additional sources of information about the cryptocurrency markets, so that we can provide more context to the actual behavior of all relevant stakeholders.
In terms of pricing methods, what differentiates the traditional finance instruments into cryptocurrencies?
Dino: “There is a huge gap between stocks and digital assets in terms of valuation methods.
For one, many of the common stock valuation methods are virtually impossible to replicate. Take the classic Price Earnings (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 company so there is no ‘gain’ to calculate such a ratio. Anyway, since Bitcoin is a payments / storage network of value, we can use the value flows through the network (transaction volume on the chain) as a proxy for ‘company earnings’. So we can still create a customized version of P / E ratio for crypto – what is usually referred to as the NVT (Network to Transaction Value) ratio.
On the other hand, the inherent transparency of blockchain allows us to create many entirely new pricing methods that would be impossible in traditional finance. Metrics like the MVRV ratio, which calculates the average profit or loss of a particular group of occupants based on when their addresses were initially ticketed.
This technology is so young, we are still in the process of discovering brand new ways to understand and evaluate symbolic networks. ”
What unique indicators have you developed over the years?
Dino: “Instead of price-based metrics, our indicators rely primarily on chain data, social media data and development activity information. To date we have created 150+ indicators using these information sources, most of which are available on Sanbase (http://app.santiment.net/), our main platform. “
In addition to providing metrics that people are already familiar with (such as daily operational referrals or transaction volume on the chain) on our website, we have also developed many new indicators and strategies ‘in-house’ over the past 3 years.
For example, one of the indicators that has shown much promise is our social volume metric, which tracks the amount of money-specific cryptocurrencies on more than 1000 crypto-related social channels. What we found is that extreme social volumes – especially during a price rally – often highlight local price peaks and short-term corrections.
We have recently made some repercussions on this as well – in 200 cases when the social volume of coins has spiked to extreme levels, their average price has dropped by 8.2% over the next two weeks. Pretty strong findings, and at a significant sample size. ”
If we were to transition to a bull market, what are some of your indicators that Bitfinex users should be keeping an eye on?
Dino: “It’s about tracking the behavior of relevant market stakeholders. For example, what are Bitcoin (or Ethereum) whales? Do they continue to accumulate or start moving their luggage, possibly to exchanges for sale? To this end, we have built various ‘Holder Classification’ metrics that allow consumers to track the behavior of different stakeholder groups, from the retail investor to the largest whales.
Bitfinex users should also keep a close eye on long-term stockholder behavior and ‘new money’, respectively. One metric that can help Bitfinex users with this is a time-limited MVRV, which measures the average ROI of all addresses it received in, say, Bitcoin, within a certain time. Historically, analyzing this metric can reveal the profit levels at which different BTC holders often begin to leave their jobs and exchange for money.
The list goes on, of course. ”
What kind of metrics do you rely on to determine the overall health of a digital ticket?
Dino: “Personally, the ones I like to look at on a daily basis (all available on Santiment, of course) would be:
1. Daily Active Addresses + Network Growth (new network addresses created) – not perfect metrics, but still very good proxies of the chain of network activity and adoption over time. In the short term, these metrics can often signal reversals of strong price trends, but in the long run, they reveal much about the appeal and sustainability of the network.
2. Chain Transaction Volume + Ticket Circulation – how much value is actually transmitted on the network and what are its long-term trends? I also like to compare the volume of transactions on the chain (all tokens that relate to daily transactions) to the circulation of tokens (which only counts unique coins related to daily transactions) to check if the transaction volume numbers can be artificially swelling.
3. Social sentiment – this is different from just the mere mention of coins. What a crowd joke mood for a specific coin? We have developed our own sentiment algorithm that analyzes whether the crowd is bullish, bearish or ambiguous about coin forecasts. When the crowd is extremely bullish on a coin, I usually bet against it in the short term. ”
How could Bitfinex users incorporate Santiment data into their trading strategies?
Dino: “All our metrics, strategies and tutorials are available at app.santiment.net, however, Bitfinex users can also access some of our most popular metrics directly on the Bitfinex platform!
The trading page of each coin on Bitfinex carries the Santiment logo (the letter ‘S’ with two black dots on each side) next to the asset price. Clicking on the logo opens a new page that contains many of our social activity, chain and development metrics – available at a discounted price.
These metrics are a compilation of some of our most popular indicators, including social volume, daily references, chain transaction volume, MVRV ratio and much more. If consumers want to get a ‘second opinion’ before implementing any of their Bitfinex trades, I strongly suggest trying them out for a month. “
For a 25% discount on Santiment Pro, visit the official Bitfinex Pulse and view our Santiment post to grab the code