Research Summary
The report discusses two strategies for identifying promising cryptocurrency investments using on-chain data. The first strategy involves finding divergences between price and fundamentals, such as when a protocol’s usage increases without a corresponding increase in the price of its token. The second strategy, known as “whale watching,” involves tracking the on-chain activity of historically profitable traders. The report emphasizes the importance of using on-chain data in conjunction with other factors, such as a promising roadmap, decent token utility, and a strong community.
Key Takeaways
Finding Divergences Between Price and Fundamentals
- Identifying Bullish Divergences: The report highlights the importance of spotting bullish divergences, where a protocol’s usage significantly increases without a corresponding increase in the price of its token. This can be an indicator of an undervalued project.
- Example of Bullish Divergence: The report uses Thorchain and its token RUNE as an example of a bullish divergence. The protocol saw a massive increase in its cross-chain trading volume in October, which eventually led to a significant increase in the price of the RUNE token.
- Key Metrics: The report identifies trading volume and revenue as key metrics for decentralized exchanges, while TVL and DEXs volume are important for L1 & L2 blockchains. Other projects should focus on fees and revenue.
Whale Watching
- Tracking Profitable Traders: The report discusses the strategy of “whale watching,” which involves identifying and tracking the wallets of historically profitable traders based on their on-chain activity.
- Use of On-Chain Analytics Platforms: The report recommends using free on-chain analytics platforms like Arkham and Debank to find profitable whales and monitor their trading activity.
- Importance of Research: While whale watching can provide valuable insights, the report warns against blindly copy-trading these traders. Instead, it suggests using this strategy to find tokens that might be worth researching further.
Actionable Insights
- Utilize On-Chain Data: Investors should consider using on-chain data to identify promising cryptocurrency investments. This can involve looking for divergences between price and fundamentals or tracking the activity of profitable traders.
- Investigate the Potential of Undervalued Projects: Investors should look for projects where there is a significant increase in usage without a corresponding increase in token price. This could indicate an undervalued project with potential for future growth.
- Monitor the Activity of Profitable Traders: By tracking the on-chain activity of historically profitable traders, investors can gain insights into potential investment opportunities. However, it’s important to conduct further research rather than blindly following these traders.
