Finding Alpha Opportunities with Social and On-Chain Data

Published in

Coinmonks

6 min readJun 17, 2022

A look into how metric sites can help traders make more informed decisions, with a glimpse at LunarCrush’s social listening site and Glassnode’s on-chain analytics

The last few weeks have been rough for crypto. Whether you’re a seasoned degen or a fledgling ape, large drawdowns and “crypto winters” are never easy to navigate. Even with a keen eye for traditional technical analysis and a good framework for assessing a project’s fundamentals, market corrections can be difficult to spot and even harder to find the alpha in.

There are ways, however, to make your crypto trading journey a bit more smooth and maximize both your chances of making sound trading decisions with confidence. Many of these ways center around intelligently leveraging alternative data — namely on-chain and social data.

Traders can use apps like GlassNode (on-chain) and LunarCrush (social) to grab real-time feeds or proprietary metrics like the Bitcoin Hash Ribbon on GlassNode and AltRank™ on LunarCrush.

Social Metrics

Real time social metrics can provide an edge when it is filtered and aggregated. Truthful and actionable insights are out there, but often difficult and tedious to find. LunarCrush compiles data from across the web and across numerous social media channels into an intuitive and eye-pleasing user interface.

LunarCrush offers a personalized experience for each user, allowing you to customize tracking of different assets while learning from the feedback you provide on both displayed content and opinion questions on everything from market conditions to memes. However the core of their offering is the real time tracking of socials and the auto-packaging of that data, along with their machine learning engines that analyze sentiment and filter for spam and low-quality content. They actively track over 4000+ assets with real-time latency and calculate proprietary metrics like Galaxy Score™ and AltRank™. As a natively web3 company, it comes as no surprise that they have their own token, $LUNR, which powers the ecosystem and incentivizes user engagement that provides even more rich first-party data, like the aforementioned opinion surveys. More $LUNR tokens held in your wallets allow you to access more data and better metrics on wider timescales (https://lunarcrush.com/lunr).

The AltRank™metric on LunarCrush is widely used as both a leading indicator and a signal confirmation. According to LunarCrush.com, Alt-Rank is a combination of an asset’s price change, trading volume, social volume, and social score relative to the rest of the universe of crypto assets. As a purely relative measure, this metric ranks all coins (1 being the best) and allows you to identify the best-performing asset amongst all the rest, meaning you can potentially find the winners even when the rest of the market is losing.

Here is a snapshot of price vs. AltRank for Flamingo Finance (FLM) in the last week:

LunarCrush also offers custom insights that alert the trader if a certain metric sees unusual activity or a large deviation from the norm, helpful in identifying when new events are impacting asset price or trading volume.

All in all a great tool for tracking popular crypto projects through the lens of social media and online content, which is often where the first tidbits of trading alpha can be found, and where traditional price action analysis often lags.

On-Chain Metrics

With on-chain metrics, a user can view the who-what-when of actual transactions:

Aggregated across millions of addresses:

GlassNode: Number of Addresses with Balance > 1 BTC

Glassnode does the tedious (and frankly complex) job of aggregation for you and packages the data into hundreds of metrics on 100+ assets. This allows you as the trader to leverage the canonical source of blockchain data for both retroactive analysis and leading indication.

Take the “Bitcoin: Hash Ribbon “ for example, which plots the 30d and 60d simple moving average of BTC hash rate against each other. The indicator is used to find periods where the 30d simple moving average of hash rate crosses over the 60d, implying a local bottom on the price of BTC and a buying opportunity. The metric is based on the assumption that BTC tends to reach a bottom when miners capitulate (it’s been historically shown that they are generally the last to capitulate after investors/speculators).

As the price of BTC drops, the margins on mining operations are squeezed until it is no longer profitable to keep it running. When these profitability thresholds are crossed, mining operators turn their rigs off and hash rate drops. It’s likely that some of the most recently earned Bitcoin by the miners are sold into the market to recoup operational costs and to hold them over while their source of revenue (mining) is put on hold. We refer to this period as “miner capitulation”.

When hash rate goes back up, it is likely due to two main factors — Bitcoin difficulty, which is a measure of how difficult it is to mine a block, and price.

Bitcoin difficulty adjusts roughly every 2 weeks in order to ensure that the average block time stays around 10 mins. When there are sudden drops in hash rate the difficulty decreases so that blocks are hashed quicker, implying that it becomes more profitable to mine (less computation i.e. electricity, for the same rewards). This brings more active miners back in the ecosystem, thus increasing the hash rate. When prices increase, the hash rate usually follows as well. As the dollar price of a Bitcoin increases, it again becomes profitable to mine and the mining operators turn their rigs back on.

What this tells us from a high level is that seeing both price and hash rate drops is a good indicator of miner capitulation, and may be a good time to buy. The confirming signal for a good buying opportunity is when the 30d hash rate crosses over the 60d, implying that things are looking up again and miners are moving back into the market.

Conclusion

While staying (or getting back) in the black is almost never an easy endeavor, there are tools and metrics out there that can give you an edge on other traders and speculators. Social media is often the first place where an actionable piece of information lands and the trick is to find it first. Aggregating this data to view the social landscape of all assets is also tremendously useful, and LunarCrush does both in an intuitive, simple way (no easy task). On-chain data provides a pure, no-frills look at what is actually being transacted and when. While this data is raw and unfiltered, it often takes a tool like GlassNode to aggregate and convert it into useful information.

If you’re looking for an edge in your trading or to actively protect your portfolio and you haven’t already, consider including both of these tools in your repertoire. By incorporating more information into your model than the next trader, you are getting a leg up on the market and increasing your surface area of success, regardless of whether the bulls or the bears are in charge.

Join Coinmonks Telegram Channel and Youtube Channel learn about crypto trading and investing

Finding Alpha Opportunities with Social and On-Chain Data

Social Metrics

On-Chain Metrics

Conclusion

Also, Read

Written by Tobias Fan