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Data shows that blockchain TVL and ETH fees are the main indicators for predicting token price increases
Key points
- TVL and ETH fees are the best indicators of short-term token price movements.
- On-chain metrics outperform social sentiment in predicting cryptocurrency price movements.
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Nansen and Bitget Research have has published a report Analysis of on-chain metrics as predictors of crypto token prices. Key findings suggest that on-chain activity, particularly total value locked (TVL) and Ethereum (ETH) fees, are better predictors of short-term price movements than social sentiment.
The report found significant connections between governance tokens and on-chain metrics for the Ethereum ecosystem and some other networks. Statistical tests revealed that ETH TVL and ETH fees form the best model for contemporary changes in governance prices.
The study examined transaction volume, new wallet creation, fees, and total value locked (TVL) across 12 blockchains: Arbitrum, Base, Celo, Linea, Polygon, Optimism, Avalanche, Binance Smart Chain (BSC), Fantom, Ronin, Solana, and Tron.
“Our partnership with Bitget is a two-pronged approach to token valuation. For promising early-stage tokens, Bitget focuses on community strength, security, and innovation. Their recent product launches like PoolX and Premarket have facilitated the discovery of over 100 new tokens since April,” said Aurelie Barthere, Research Analyst at Nansen.
To predict price returns one week ahead, both ETH TVL and ETH fees have shown importance as individual factors. Higher fees and TVL tend to be associated with higher subsequent returns.
Specifically, the study used Fama-MacBeth regressions to estimate the risk premiums associated with token price returns. This is a metric widely used by financial practitioners to estimate the risk premiums associated with stock market returns.
“In terms of forecasting price returns, one week ahead, ‘TVL in ETH’ is a significant risk premium in a one-factor model, and so is the metric ‘Fees in ETH.’ Both have positive risk premiums or coefficients, meaning that higher fees and higher TVL tend to be associated with higher subsequent returns,” the analysts noted.
The results were more significant when testing the chains separately rather than aggregating Ethereum and the layer 2 (L2) chains.
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