1/n
Research showcase: I took a research approach to analyze various factors that can potentially predict $MKR returns on different time scales. Those factors include momentum, macro indicators, Internet search trends, other crypto, and network fundamentals.
2/n
Momentum:
MKR has a strong positive short-term momentum, but the trend often reverses in 5-6 weeks. (Using autoregression with 1-8 weeks lags on weekly data since 2018)
3/n
Google search trends:
Google searches on MakerDAO positively correlates with the next-week return of MKR. Interestingly, searches on Bitcoin and Ethereum also shows some correlation with t+1 and t+2 returns. (Again using autoregression on weekly data)
4/n
Macroeconomic factors (consumption, production, income):
Generally no significant correlation, except for growth in durable consumption. Results are robust after controlling for risk-free interest rates. (Log linear regression using monthly data)
5/n
Network fundamentals (address count, transaction count/volume, average transaction value):
Consistent with theoretical prediction, there is significant contemporaneous correlation between MKR return and addresses count, transaction volume, and average transaction value.
6/n
However, that might be reverse causal: people create new addresses and buy/sell more when returns are high. So I looked at this-month fundamentals vs next-month return. Now Addresses count remains a good predictor.
7/n
Technical ratios (NVT, MVRV):
I found no significant correlation b/w MKR returns and its NVT or MVRV. This could be because the delegation mechanism making transaction data fuzzy, or simply that transaction-based ratios doesn't mean much to MKR as a gov token.
8/n
The tables for the last two (fundamentals and ratios) are too big to attach in the thread. They are in the full report here: drive.google.com/file/d/1-CPcANp4NJxxyAsbVCLfaAvYLoGqkqLk/view
9/n
Trading MKR:
An effective trading strategy on MKR should pay close attention to its user base, voting-related activities, and search popularity in the past 1-2 weeks. Be cautious to hold any position for over 4 weeks since there's a potential reverse momentum.
10/n
It can be speculated that DAI's TVL, and its major collaterals such as USDC and BTC, can also have an impact on the demand for MKR. Since MKR resides within the Ethereum ecosystem, ETH returns and related events (e.g. the merge) will also impact MKR’s performance.
11/n
This report is my final project for @ProfPieters's finmath crypto class @UChicago. Special thanks to her for teaching us lots of useful research methodologies in crypto, including the one I'm using here, originally outlined by Liu and Tsyvinski (2021).
@MakerDAO #MakerDAO
mingxuanh.eth
@MingXDynasty
blockchain ℝesearch & data | meme AGI dev | incoming @Gauntlet_xyz | escaping @UChicago | Gamer. d/acc
