Weekly Onchain Insights: The Rise of The Oracles
The IntoTheBlock newsletter highlights weekly interesting data points about the crypto markets.
Every week the IntoTheBlock team publishes a newsletter that summarizes key data insights about the crypto market. Below is a quick summary.
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Hey onchainers,
Welcome back to IntoTheBlock’s newsletter. We have created a different type of newsletter for crypto fans that is not about news, but about data and analytics. Every week, we deliver valuable data insights about the crypto market.
This week it’s all about altcoins as the rally in oracle and decentralized finance (DeFi) tokens outpaces the broader market. While adoption of some of these tokens is growing, it is important to stay cautious as speculative activity is starting to reach levels reminiscent of 2017.
Bitcoin Price Analysis: $11,694 (3:00am EST 08/14/2020)
Intotheblock’s In-Out Money Around the Current Price(IOMAP) uses machine learning to identify the ten most relevant clusters of investor positions at a range of plus-minus 15 percent of the current price.
At the moment of writing the price of Bitcoin is $11,694, and it’s up 0.05% during the last 7 days. Using our In/Out of the Money Around Current Price indicator (IOMAP), we see that there are 469k addresses with positions around the $11,816 mark, this could represent the next level of resistance for Bitcoin price to go over $12,000. Looking at the IOMAP from a volume perspective, we see that those 469k addresses at the level of $11,702 to $12,049 hold almost 380 thousand BTC.
If Bitcoin breaks through the $12,049 barrier, it could keep going higher up to $13,000 without much resistance.
But what if the price of Bitcoin starts declining? The IOMAP analysis reveals that BTC has a strong support level at the range of $11,335.44 to $11,683, where 1.75 million addresses bought 1.09 million BTC.
See the Bitcoin In/Out of the Money Around Price
The Rise of the Oracles
Chainlink (LINK) and Band Protocol (BAND)
Recently, with an increased risk appetite for DeFi tokens, oracle tokens have benefited from association. While oracle solutions in reality span further than just financial data, they do provide price data to most of the top DeFi protocols, which may have led to them falling under this umbrella term in some of the top crypto data aggregators. Benefiting from this wave and propelled by its relentless community, Chainlink has outperformed broader crypto markets with a return of over 10x year-to-date.
The price action has gone particularly parabolic since July, with LINK’s price going from $4 to $18 within less than a month and a half. Along with price activity, the number of daily active addresses using LINK has reached new all-time highs.
While part of the increase in users may be attributed to demand from integrations, the fact that spikes in the price of LINK coincide with the sudden growth in daily active addresses points to speculation being the main driver behind its network activity. If we correlate LINK’s price performance with its daily active addresses, we obtain a correlation coefficient of 0.91, indicating a very strong statistical relationship between the two.
Going deeper into the network analysis, we took a look at the growth of total addresses with a balance in LINK over the last month. By simply overseeing the trend of total addresses with a balance we can see the resemblance with Chainlink’s price movement.
In just 30 days, the number of addresses with a balance grew by 26,710, althoughthis may not be seen as much, Chainlink only have 193.95 thousand addresses currently holding LINK.
See More Chainlink Network Stats
The recent Rally in Chainlink was Fuelled by Big Players
Our Large Transactions indicator serves as a means of counterparty analysis, as it tracks transactions larger than $100k, hence giving insights on the activity of institutional players when compared to the total number of transactions and their corresponding volume in the network.
Over the last 7 days, when the parabolic rise of LINK started, the number of on-chain transactions greater than $100k saw exponential growth. When comparing the total transacted volume in LINK versus the total transacted volume only in Large Transactions ( >$100k/trx ) from July 7, we have observed that at first 49% of the total volume belonged to these Large Transactions, while on August 13 that number had increased to about 79%.
As can be seen in the graph above, the large transaction volume experienced yesterday was overwhelming at $681m, an all-time high.
See the Chainlink Large Transactions Stats
BAND Speculation Follows Along
Similar to Chainlink, Band Protocol offers oracles bringing off-chain data on-chain in a decentralized manner. A key difference between the two, though, is that Band Protocol’s interoperability allows it to provide oracles across multiple layer one blockchains, while Chainlink currently only supports Ethereum. Band Protocol is able to do this by leveraging Cosmos software development kit.
While Band Protocol and its native BAND protocol have been around for less time than Chainlink, oracle-mania has propelled the BAND token to appreciate remarkably (60x year-to-date) and set all-time highs across multiple on-chain metrics too. As can be seen above, BAND daily active addresses reached an all-time high along with the tokens price on August 10.
As you might have expected, the correlation between daily active addresses and price for BAND is quite strong with a 0.94 correlation coefficient. Despite correlation not implying causation, the strong statistical relationship between the two raises concerns as speculative activity appears to be the main driver behind the price surge. While this does not detract from high value both Chainlink and Band may obtain in the long-run from its partnerships, it displays a risky environment where expectations may be getting ahead of themselves.
See the Band Protocol Network Stats
BAND Daily Transactions Also Benefited From The Speculation
As previously mentioned, the recent DeFi rally has been benefiting the demand of the oracle tokens. In response to this increase in demand, the number of BAND transactions reached a level never seen before.
The number of transactions has been on a consistent uptrend since July of this year. Along with the impressive price appreciation, the peak in the number of daily transactions is approximately 180x higher now than what we saw at the beginning of the year.
See the Band Protocol Transactions Stats
DeFi Tokens & The ‘Binance Effect’
An on-chain analysis of Yearn.Finance (YFI)
Along with oracles, DeFi tokens have also been resembling the price action experienced by many ICOs in 2017. While the products being shipped by DeFi protocols differentiate them from the vaporware pitched by ICO teams, investors’ expectations in both cases appear to be irrationally exuberant. This is evident when looking at the recent listing of yearn.finance’s governance token YFI in Binance (not to mention the boom and bust of YAM within 48 hours).
In 2017, the term ‘Coinbase Effect’ was coined after Litecoin and Bitcoin Cash’s price increased by over 50% within days of being listed on the San Francisco-based crypto exchange. In 2020, we have seen the same happen with the listings of OMG and MKR in Coinbase in late May and early June respectively. More recently, the hyped YFI token experienced a similar price run-up after getting listed on Binance.
Despite yearn.finance’s Andre Cronje repeatedly stating that YFI was meant to be earned through yield farming and that it would be a valueless token, Binance traders begged to differ as YFI’s price blew up by over 50% within 24 hours. As Binance users rushed to buy YFI, the total number of holders increased along with it. Currently, the number of YFI addresses with a balance is approaching 5,000, growing by over 10% on the day it got listed on Binance.
While a 10% increase in the number of addresses with a balance may not seem as significant, it is important to note that centralized exchanges hold users’ private keys. By doing so, they often aggregate multiple users’ tokens within one or a few addresses. This points to the likelihood that the number of YFI holders increased by more than 10%, expanding the reach of potential users for yearn.finance.
YFI Consolidates a Global Reach
There had been rumors of YFI being one of the most hyped tokens in the Eastern hemisphere. In part, this may have led to the Chinese forked version YFII and the Korean fork Asuka token, the latter which concluded in an exit scam. Using IntoTheBlock’s East vs West metric we can track an on-chain heuristic classifying transactions that occur during Eastern market hours versus those happening in Western trading times.
As shown in the graph above, Eastern transactions had dominated on August 8 and by an even larger ratio of 3-to-1 on August 7. This trend reversed the day prior to the Binance listing, with 60% of transactions occurring in the West. On August 10, as YFI was listed on Binance, Western transactions consisted of 66% of the total of 3,800 transactions. Overall, this has balanced the transaction of activity of YFI in both hemispheres, making it a global token.
Sudden increases in transactions in particular time zones are relevant for traders following YFI (or other tokens) as they may want to adjust their positions differently if they expect trading activity to occur at times when they are not active. IntoTheBlock’s East vs West indicator provides trader a better idea of when trading activity is expected to occur, allowing them to plan according to when trading activity is expected to happen.
Going back to the topic of DeFi tokens, on-chain data suggests that listings in large exchanges benefit the tokens with a global reach of institutional and retail investors, as well as further liquidity. Ultimately, this should contribute positively to these tokens and their respective protocols, but it is important to proceed with caution as these price spikes signal high speculative activity taking place.
See thje YFI East vs West Chart
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