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Santiment: Why a New Wave of Volatility might be coming to Ethereum

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Takeaways:

  • The market’s prolonged indecision combined with the recent behavior by ETH miners and whales indicate increased volatility may be on the horizon for Ethereum
  • Assets covered: Ethereum
  • Metrics used: Top holders, Token age consumed, Miner balances, Social volume, Social sentiment, Holder distribution, MakerDAO debt created

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We are now a month removed from ‘Black Thursday’, when the coronavirus pandemic toppled the world’s financial systems and sent the crypto market into freefall.

Most cryptocurrencies including Ethereum were down 40% or more on the day, and have been eyeing for a 2017-like bounceback since. So far, no dice.

So what’s the short-term outlook for the world’s second largest cryptocurrency? Looking at Ethereum’s latest on-chain and social data, there’s still a number of indicators that the market remains grossly undecided and – at least as of yet – fairly uncommitted.

That said, over the past week in particular there have also been growing signs we might see some heightened volatility for Ethereum up ahead. In fact, with Ethereum’s 11% spike in the last 36 hours, we might very well be there already. 

Market indecision, visualized

Since the market collapse, all of the biggest stablecoins – and Tether and USDC in particular – recorded massive gains to both their market cap and daily trading volumes.

Price of Ethereum, plotted against the market cap of USDT and USDC, last 3 months (Source: Sanbase)

The growth has mostly been attributed to cryptocurrency speculators exiting the market and retreating into low-volatility assets for the time being. There’s also those who believe the increased interest in stablecoins could at least partly be due to market newcomers converting their fiat to digital dollars, waiting on the sidelines for the right moment to storm the market.

Whatever the case, on-chain data suggests that the moment to enter (or re-enter) the market has yet to come. For one, the collective holdings of the biggest (non-exchange) Tether and USDC addresses continue to grow since March 13th, indicating a growing lack of desire among whales to move their stablecoins back to exchanges and resume trading.

Collective amount of USDT held by the biggest non-exchange USDT addresses (Source: Sandata)
Collective amount of USDC held by the biggest non-exchange USDC addresses (Source: Sandata)

And it’s not just whales – most retail holders of USDT and USDC have continued to accumulate stablecoins without respite over the last 30 days. In fact, the only groups of holders that seemed to have experienced a short-term change of heart have been the addresses holding between 1000-10000 USDT and 100-1000 USDC.

Thess groups have offloaded a portion of their holdings between March 31st and April 4th (which correlates to spikes in transaction volumes for both coins), indicating a potential paradigm shift and a return-to-market mindset. However, even they have since reverted back to growing their stablecoin bags in the recent weeks.

Amount of USDC in addresses holding between 100-1000 USDC, last 3 months (Source: Sandata)

In a similar fashion, market indecision has seeped into DeFi just as well. Nowhere is this clearer perhaps, that in the case in MakerDAO, whose lending protocol has had undoubtedly one of its rockiest months since inception.

We’ve seen a sharp drop in the amount of new debt created within the MakerDAO system, likely exacerbated by the appearance of a $4 million debt bubble after the market crash, and the follow-up slashing of the Dai Savings Rate.

While this is concerning for the state of DeFi in and of itself, less DAI issued also likely translates to less new money moving into leveraged long ETH positions for the time being. Again, the market appears woefully uncommitted.

New debt created in MakerDAO, last 3 months (Source: Graphs by Santiment)

Beyond stablecoin holders and DeFi users, social data suggests that the mainstream crypto community is also growing increasingly lethargic about Ethereum and the market in general. The amount of mentions of ‘buy’, ‘bought’ and ‘bullish’ on crypto social media is now hovering at a month-low, as is the amount of mentions ‘sell’, ‘sold’, and ‘bearish’. Whichever way you slice it, the market appears to be exhausted.

Amount of mentions of ‘buy’, ‘bought’ and ‘bullish’ on crypto social media, last 3 months (Source: Sanbase)
Amount of mentions of ‘sell’, ‘sold’ and ‘bearish’ on crypto social media, last 3 months (Source: Sanbase)

As for Ethereum in particular, after a slight uptick in social mentions mirroring its move above $170, the coin’s mentions on crypto social media is once again trending south across the board:

Amount of Ethereum-related mentions on crypto social media, last 3 months (Source: Sanbase)

Other than a pure amount of mentions, the crowd’s sentiment towards Ethereum has also grown more indecisive. According to our social algorithm, Ethereum-related sentiment on sites like Twitter and Discord are either hovering around the 0 mark or leaning slightly bullish, indicating a more-less fairly distributed amount of positive and negative shoutouts of ETH in the past 7 days:

Ethereum-related sentiment on Discord, last 5 months (Source: Graphs by Santiment)

In a word, the total amount of chatter on crypto social media continues to die down, and the remaining Ethereum-related discussions are split across the middle. Yet again, the market appears uncommitted.

All these charts serve to illustrate the same point – market has remained uncommitted for too long. Historically, these prolonged periods of market indecision have often preceded spikes in short-term volatility. And on top of the above, there’s a growing number of clues that Ethereum is indeed headed for choppy waters:

Early volatility markers

Next to the outlined signs of market indecision, I’ve also been keeping an eye on some early indicators that Ethereum might be poised for a short-term volatility spike.

Most notably, we’re seeing a strong paradigm shift developing on the charts tracking two major Ethereum stakeholders – miners and whales.

After a sudden drop in their collective holdings after ETH spiked above $170 (indicating short-term selloffs), Ethereum miners are now back to accumulating their block rewards once again, with over 80,000 ETH added to their bags in the last 7 days alone:

Collective balance of Ethereum miners vs the price of ETH, last 3 months (Source: Sanbase)

While this metric is better served as more of a long-term indicator of miner sentiment, the short-term shift in behavior has been mirrored squarely by Ethereum’s biggest whales as well.

In the past 7 days, the largest non-exchange addresses holding ETH have added more than 700,000 ETH to their bags – a sharp contrast to their major offloading efforts in the days leading up to ETH’s move above $170.

Collective amount of ETH held by the biggest non-exchange ETH addresses (Source: Sandata)

This renewed faith in Ethereum expressed by some of its major holder cohorts could earmark a rise in short-term volatility for the coin. That premise is further supported by the latest spike in Ethereum’s token age consumed (its first notable blimp in the last 3 weeks), which indicates that a number of previously dormant ETH coins (i.e. long-term investors) are now on the move:

Ethereum’s Token Age Consumed, last 3 months (Source: Sandata)

Historically, Ethereum’s token age consumed spikes have often correlated with short-term shifts in the coin’s price action, which often happens when ‘old money’ gets new legs.

In conclusion – the market has stayed uncommitted for too long, and we’re now seeing several important holder groups starting to make moves. Heightened volatility might be on the horizon for Ethereum in days to come.

Final Notes

This report was produced using Santiment’s growing suite of market and network analytics tools – Sanbase and Sandata – which help users analyze the crypto market and find data-driven investment opportunities.

Santiment provides clean and reliable on-chain, social media and development information on over 1000 crypto assets, and develops unique metrics, signals, strategies and reports on top of our custom datasets.

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About Santiment

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