Realised Price: Altcoin Challenges

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Last updated 9 months ago

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Realised Price: Altcoin Challenges

The Realised Price metric was originally developed for Bitcoin and has proven effective in identifying market cycles and market santiment. Applying this metric to altcoins offers valuable insights but also presents certain challenges that can complicate its interpretation.

Bitcoin and Ethereum: A Comparative Perspective

Bitcoin, being a first-generation blockchain, has a relatively simple functionality. The primary operation within its blockchain is the transfer of Bitcoin itself, excluding mining. This simplicity allows for a straightforward application of the Realised Price metric, treating each transfer as a purchase or sale with a high degree of approximation.

In contrast, Ethereum and more recent blockchains support advanced functionalities, including the creation of smart contracts and ERC20 tokens. These capabilities enable the execution of complex financial operations, such as lending, trading, and liquidity provision, as well as token burning. Such features add complexity to the analysis, requiring more sophisticated models to accurately approximate market dynamics.

Key Features Affecting Analysis

Distribution of Asset Supply
When a new altcoin is launched on the Ethereum network, the creators typically issue tokens and transfer them to their own wallets. These tokens often remain inactive for extended periods and are gradually distributed according to the allocation model chosen by the creators. This initial transfer of tokens from the deployer contract to the creators' wallets can significantly impact the Realised Price metric, as it incorporates these long-term held tokens into the calculation. Advice: To address this issue, we recommend using age-based cohorts for macro metrics. To mitigate the impact of these initial transfers, you can analyze only the cohort of addresses with a lifespan shorter than the age of these transactions. This approach helps in reducing distortions caused by early token distributions and provides a clearer view of current market conditions.
Complex financial operations
Smart contracts on modern blockchains create various financial activities, such as trading, liquidity provision, and borrowing, which are recorded as transactions on the blockchain. These activities can affect the accuracy of Realised Price calculations.
Example: WETH Token
A notable example is the WETH (Wrapped Ethereum) token. In addition to standard ERC20 transfers, WETH supports Withdraw and Deposit functions, allowing users to convert Ethereum to WETH and vice versa. We have accounted for these transactions, which has improved the accuracy of our Realised Price metric.

PreviousUnderstanding Realised Price NextSOPR

Last updated 9 months ago

Was this helpful?

Bitcoin and Ethereum: A Comparative Perspective

Key Features Affecting Analysis

Distribution of Asset Supply
When a new altcoin is launched on the Ethereum network, the creators typically issue tokens and transfer them to their own wallets. These tokens often remain inactive for extended periods and are gradually distributed according to the allocation model chosen by the creators. This initial transfer of tokens from the deployer contract to the creators' wallets can significantly impact the Realised Price metric, as it incorporates these long-term held tokens into the calculation. Advice: To address this issue, we recommend using age-based cohorts for macro metrics. To mitigate the impact of these initial transfers, you can analyze only the cohort of addresses with a lifespan shorter than the age of these transactions. This approach helps in reducing distortions caused by early token distributions and provides a clearer view of current market conditions.
Complex financial operations
Smart contracts on modern blockchains create various financial activities, such as trading, liquidity provision, and borrowing, which are recorded as transactions on the blockchain. These activities can affect the accuracy of Realised Price calculations.
Example: WETH Token
A notable example is the WETH (Wrapped Ethereum) token. In addition to standard ERC20 transfers, WETH supports Withdraw and Deposit functions, allowing users to convert Ethereum to WETH and vice versa. We have accounted for these transactions, which has improved the accuracy of our Realised Price metric.