Insights To Individual Investor Positions in Crypto-Assets
Chief Scientist, Managing Partner at Invector Labs. CTO at IntoTheBlock. Angel Investor, Writer, Boa
Blockchain datasets are an immensely rich source of information that differentiates cryptocurrencies from traditional asset classes. The fact that the relevant percentage of the transaction activity is recorded in public ledgers provides the basics for deeper quantitative analyses that reveals insights about the behavior of crypto-assets.
The concept of the IOM analysis is to scan a given blockchain and detect clusters of investors that are realizing gains based on the current price.
To achieve that, the IOM method relies on unsupervised learning algorithms against a dataset of all the transactions ever recorded for a specific crypto-token in a given blockchain. The basic explanation of the IOM signal is described in the following short video:
Among the potential ideas to expand the value proposition of the IOM analysis, there were two that were a regularly mentioned by our customers:
i. Provide a finer level of granularity around the current price in order that can be important in short-term price movements.
ii. Provide the historical behavior of the IOM indicator and its relationship with price.
In-Out Money Around the Current Price
The IOM Around the Current Price signal intends to provide a very granular groups of investors realizing gains or losses in close proximity to the current price. The signal highlights 10 clusters of relevant groups of addresses distributed around a +-15% distance from the current price.
Let’s look at this signal applied to the current price of Bitcoin. A quick analysis reveals that $9600 is a strong level of resistance with over one million addresses with positions around those prices.
Similarly, 9000 seems like a strong support with over 600,000 addresses holding balances at those levels. The entire analysis expands a short price range from $7917 to $10737 which provides a great level of granularity.
The same analysis for Ethereum showcases a very strong support around $181 with over one million addresses at those levels.
The contracts between the IOM Around the Current Price and the traditional IOM that covers the entire blockchain is very visible when analyzing Bitcoin Cash(BCH).
Historically, BCH has been a very profitable investment with over 90% of investors realizing gains. However, the IOM Around the Current Price filters out many of the original airdrop token holders that haven’t been actively trading and provides a view of the token more relevant for traders which presents 47% of investors realizing gains.
The Historical IOM signal provides the distribution of in-the-money and out-of-the-money positions over time. This signal is relevant to detect possible correlations between price variations relative to variations in the investor positions. As you can see in the figure below, the in-the-money curve trend nicely aligned with price movements in Bitcoin.
The trend doesn’t look quite as strong when applied to Ethereum.
Looking at individual address positions is one of the unique analyses that are possible in crypto-assets and have no equivalence in other asset classes.
The new IOM techniques should provides deeper perspectives about the positions of groups of investors in crypto-assets that could help us better understand their behavior and could potentially become alpha or smart-beta generating factors in trading strategies.
(Disclaimer: The Author is the CTO at IntoTheBlock)
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