Key Takeaways
TVL and ETH fees are the best indicators for predicting short-term token price fluctuations. On-chain metrics are better than social sentiment in predicting cryptocurrency price movements.
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Nansen and Bigget Research recently published a report analyzing on-chain metrics that predict crypto token prices. Key findings suggest that on-chain activity, specifically Ethereum (ETH) total value locked (TVL) and fees, are better predictors of short-term price movements than social sentiment.
The report found significant associations between governance tokens and on-chain metrics for the Ethereum ecosystem and several other networks, with statistical tests revealing that ETH TVL and ETH fees form the best model for the current changes in governance price.
Ethereum+L2 ecosystem fees (in ETH) vs ETH price. Image: Nansen
The study looked at transaction volume, new wallet creation, fees, and total locked value (TVL) across 12 blockchains: Arbitrum, Base, Celo, Linea, Polygon, Optimism, Avalanche, Binance Smart Chain (BSC), Fantom, Ronin, Solana, and Tron.
“Our collaboration with Bitget represents a two-pronged approach to token evaluation. For promising early-stage tokens, Bitget’s focus is on community strength, security and innovation. Recent product launches such as PoolX and Premarket have facilitated the discovery of over 100 new tokens since April,” said Aurélie Barthele, research analyst at Nansen.
When predicting one-week-ahead price returns, both ETH TVL and ETH fees were significant as individual factors: higher fees and TVL tend to predict higher subsequent returns.
Notably, the study employed Fama-MacBeth regression to estimate the risk premium associated with token price returns, a metric widely used by financial experts to estimate the risk premium associated with stock market returns.
“In predicting one-week-ahead price returns, ‘ETH TVL’ has a significant risk premium in the one-factor model, as does the ‘ETH fees’ metric. Both have positive risk premiums or coefficients, meaning that higher fees and TVL tend to lead to higher subsequent returns,” the analysts emphasized.
The results were more significant when testing the chains individually, rather than aggregating Ethereum and Layer 2 (L2) chains.
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