Analysis & Opinions

This Week in Crypto: A Data Perspective (June 1-5)

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In yet another volatile week for crypto, interesting patterns are emerging in the on-chain activity of some of the top cryptocurrencies. Leveraging blockchain’s transparent nature, IntoTheBlock is able to extract valuable insights, providing a data-driven analysis into news about the top cryptocurrencies. 

This week, we will cover blockchain data for two of the top smart contract protocols upgrading from proof-of-work (PoW) to proof-of-stake (PoS), as well as some key insights analyzing patterns behind the recent volatile price movements for Bitcoin.

Raising the Stakes

For years, proof-of-stake has been described as the next major step for some of the top blockchains towards the goal of scalability. In contrast to PoW — where miners are rewarded for solving complex algorithmic problems (SHA-256 in the case of Bitcoin) and validating transaction blocks — PoS digitalizes the process and achieves consensus by having holders lock up tokens and rewarding them for honestly validating transaction blocks. By removing the need for miners, PoS blockchains drastically reduce energy requirements, while also potentially decentralizing supply creation by not having to rely on a small number of large mining companies.

This week, Cardano grabbed headlines after its founder Charles Hoskinson announced that its PoS upgrade, known as Shelley, will be deployed by the end of June, as covered by CryptoBriefing. Cardano’s underlying token ADA shot up over 40% in the week following Hoskinson’s announcement. Through the Shelley hard fork, Cardano will launch its mainnet, enabling decentralized applications to build on top of it; a key step if it wants to succeed as a “Ethereum killer.”

By using IntoTheBlock’s Large Transactions Volume indicator, we can assess the behavior of whales and large holders of ADA in reaction to the Shelley mainnet announcement. IntoTheBlock labels as large transactions those that transfer a value greater than $100,000 USD, and aggregates the daily volume for all the transactions satisfying this requirement. 

In the days following the news, Large Transactions Volume spiked reaching over $7 billion, the highest level since February 2018. This could be interpreted as a sign of optimism from large holders wanting to stake their tokens, or also as an indicator of speculation anticipating the price of ADA to rise as Cardano reaches this milestone.

Screenshot published June 3, 9am EST

Ethereum Layer 2 Progress

In similar news, Ethereum has made significant progress towards its Serenity upgrade as covered by Brave New Coin. Dubbed Ethereum 2.0, the Serenity upgrade is a series of phased updates including the transition to PoS. Layer 2 solutions, such as OMG Network’s Plasma sidechain, scale the capacity of Ethereum by taking transactions off-chain by using smart contracts built on top of the base consensus layer, hence the name. By doing this, second layer technologies have the potential to increase transaction throughput while decreasing transaction (gas) fees.

Based on recent advancements from many layer 2 solutions, Vitalik Buterin stated:

By monitoring the number of addresses with a balance of ETH, IntoTheBlock offers an approximation of the number of users holding the token. In the case of Ethereum, it is evident that it is fostering a community of involved users as the total number of addresses with a balance has been increasing constantly since its inception. With Ethereum making strides towards launching Ethereum 2.0, the total number of addresses holding ETH (39.9 million) has surpassed those holding Bitcoin (30.1 million).

Screenshot published June 3, 9am EST

The total number of addresses holding a token is not necessarily correlated with its price, but does provide a picture of its adoption and network growth.

Roller Coaster Ride to $10K & Back

Finally, we can’t ignore the volatile price action of Bitcoin and most other cryptocurrencies in the past few days. As described by Decrypt, Bitcoin’s price reached highs of $10,400 and held above the closely followed $10,000 mark for a few hours, just to drop back down to $9,400 within one hour.

Screenshot published June 3, 9am EST

While traditional technical analysis can be used to analyze price behavior of assets from crypto to corn futures, on-chain data provides key patterns native to the nature of cryptocurrencies. IntoTheBlock’s In/Out of The Money Around Price (IOMAP) indicator uses machine learning to identify relevant clusters of holder positions within 15% of the current price. By aggregating holders’ positions, the IOMAP offers an approximation of the investors that are susceptible to near-term price movements, which can act as a valuable complement to traditional support and resistance levels. 

Following the price drop below $10,000, we can see a large cluster of addresses creating resistance in the range between $9,520 and $9,790. With 1.24 million addresses buying over 900,000 BTC in this price range, many of these investors may be looking to sell at this price to break-even on their positions.

Screenshot published June 3, 9am EST

While there is strong near-term resistance below $10,500, on-chain positions suggest that less addresses may be looking to sell past this point as shown by the decreasing cluster sizes in the IOMAP. 

Overall, an analysis of on-chain positions provides valuable insights of trader behavior that can be used to complement technical analysis. With holders keeping an eye on the 5-digit mark for Bitcoin, market-wide optimism is likely to return if it can go back above this on-chain resistance level.

This article is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis before making any material decisions related to any of the products or services described. This article is not intended as, and shall not be construed as, financial advice.

The views and opinions expressed in this article are the author’s own and do not necessarily reflect those of CoinMarketCap.

ITB is a tribe of data scientists, cryptocurrency experts and AI geeks that set out on a journey to unlock the mysteries of crypto assets and provide investors with relevant intelligence about the market.

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