ICYMI, @coinmetrics @coinmetrics put together this incredibly comprehensive 40 page ETH research report: 

"Mapping Out The Merge" 

We found it quite informative and wanted to be sure to share it with our readers in TLDR format, with a few of our fav metrics for added context

The Merge is scheduled to take place on 9-15-2022

When this happens validators of ETH's blockchain will switch from Proof-of-Work mining to Proof-of-Stake

PoW vs PoS has been the topic of much debate, but in short PoS proposes to improve ETH's security, economics,& emissions

At present PoW miners alone validate transactions and secure Ethereum's network 

Under PoS validators will lock up their ETH in exchange for yield (currently ~4.5% APY) this feature seeks to incentivize large holders to secure ETH's network with yield rewards as payment


The Coinmetrics graphic below brings the literal merge behind "The Merge" to life nicely 

This event will fuse ETH's Beacon PoS chain (running in parallel since 2020) with the PoW chain (running since 2015 inception) 

After, these two separate chains will become one


Following The Merge there will be be 2 layers operating in unison to help Ethereum's efficiency:

1) The pre-Merge execution layer,where users will make transactions

2) The Beacon Chain consensus layer,where validators will process new transactions and build new chain blocks


To become a validator one must stake 32 ETH

Given this high capital lock up,but necessity for ETH security, greater staking rewards (>20%APY) were offered to Beacon's early adopters

Below we see this dynamic of rewards decreasing as the # of validators grows, ~4.5% @ present

This has confluence with our onchain view too 

The purple line below shows the rise in ETH holdings by top non-exchange addresses, the white box indicates when Beacon PoS chain launched in late 2020 

This ETH2.0 yield staking catalyst sent whale holdings+ETH price parabolic

In addition to staking for yield, post-Merge validators will also earn yield from user-paid transaction fees on the execution layer and MEV 

Previously such fees went to miners, now they will be split amongst any and all who stake a validator


This staking consensus mechanism will also drastically change ETH's supply schedule... 

PoW supply schedules are predetermined, under PoS this will vary depending on the amount of ETH staked 

The greater the amount of ETH staked, the greater the supply increase & viceversa


Currently ETHs supply increases by 5m coins p.a under PoW supply schedule

But under PoS, there's currently ~13m/122m ETH supply staked

Assuming this staked amount remains static it will result in just 600k new ETH coins being created over the next year, a >90% decrease


When we also account for EIP-1559 burning transaction fee costs, it is likely the amount of ETH supply created p.a will be less than the amount of ETH burned

Making it a deflationary asset

The pink line below simulates the PoS supply difference vs PoW (blue line)'21-now


All of these potential benefits are not without their trade-offs however 

Merge is far from a risk free event, as any number of things could go wrong on the event just from a technical standpoint

And while it improves ETH scalability it doesn't fully deliver this on day 1


There is also the elephant in the room issue of supply centralization

As we saw in the early chart ETH's supply is now extremely concentrated amongst large holders

Under PoS whales will become validators, granting them ability 2 conspire and alter ETH for their own benefit


While this centralization + other risks may be outlier scenarios the possibility of them happening is far from 0% 

As such investors should study CoinMetrics report in it's entirety then weigh the risks vs rewards before before making any decisions to allocate capital

And for a final data set, we have our ETH divergence chart which highlights the direction of whales bias 

We see they've added relentlessly since late 2020 

Though they were selling earlier in August, they have been viewing this recent correction to accumulate more


We hope you enjoyed this thread be sure to follow @coinmetrics and subscribe to our Espresso newsletter below for weekly market analysis and updates https://jarvislabs.substack.com/


Mapping out the Merge

Crypto markets have been rallying with force for the past 8 weeks, BTC is up over 25% from its early summer lows and ETH's>100% during its long-awaited merge rally

But is this price action sustainable? Is there a historical precedent for continuation?

Let's check the data...

First up: 30D returns

This shows us how much profit taking there may be in the market at a given time

The white line shows us prior bear mkt rallies +30-50% range have been good times to sell

BTC currently rests at a comfy ~+17% so there may still be room for a run higher


ETH tells a much different story with 30D returns encroaching on ~75%

Historically this rate of return has triggered harsh selling & corrections(white line)

But there have also been past instances when 30D returns have surged much higher,along with ETH price,before reversion

Due to correlations merge or no merge ETH will be hard pressed to rally much further without BTC coming along

The pair move in tandem,so if ETH is headed higher it will need BTC to join. But is there any accumulation data hinting at a larger BTC rally upcoming? Let us see...


Whales(red dots)have been BTC indifferent since the spring, making this a retail rally for the time being

However, retail accumulation (green dots) has been insatiable at nearly every price

What we'd like2see now is a q4 2020 repeat w/ whale buyers stepping in to join them

The ETH divergence chart below shows the same whale/retail accumulation patterns, we see similar indecision

Both accumulated during the crash, but both also took profits at the start of Aug(blue dots)

This brings life to how much uncertainty remains over the current rally

Since the accumulation and 30D returns don't provide us with any concrete clues on direction we look down the risk spectrum, and view our Fair Price Scanner

With this we see most alt-coins are performing only modestly. A sign that the market may not be as frothy as advertised

We did see risk-premium scores top out multiple times during this BMR, indicating that even though risk has been attractive, caution is highly advised for the coming weeks. 

Checkout @MrBenLilly 's Espresso post on ETH Merge and the associated unknowns. https://jarvislabs.substack.com/p/the-unknown-unknowns

Divergence Rally

NYC hours = Volatility 

Since the start of July, the bulk of BTC / ETH gains have been generated during NYC market hours (13:00-21:00 UTC) while European and Asian trading session returns have remained mostly flat to -ve 

So what does this mean and why is it significant?

NYC is the financial capital of the world, trillions of dollars are traded weekly on stock and crypto exchanges during this session

This time is also when significant news & Fed policies are discussed 

This action is what creates the correlation between BTC and the S&P 500

Due to their size and historical trading performance, it is safe to assume "smart money" trades here, those who you'd be unwise to counter-trade 

Following their green line below from June-December 2020, we see NYC drove the rally that launched BTC from <10k to >60k in < a yr

Below is another example of their prescience 

After driving BTC to new heights this session shifted in March '21, there the NYC session began to dump BTC while it was at the highs above $60k (white arrow) 

~8 weeks later it was trading below $30k


We saw this on display once again just prior to the collapse of Luna/UST in May of this year 

The NYC session began2sell off BTC above 40k just prior to Luna's death spiral 

That lead to a market-wide mass deleveraging event as BTC crashed by over 50% in just 6 weeks after




They were also the first2buy in July 2021 just prior to the short squeeze from 30k-69k 

And the first to sell in November-December 2021 just prior to the crash back down 

Below we see them exhibiting bullishness past month as they led the huge squeezes on both BTC & ETH




However, Monday was August 1st...the start of a new month, and the NYC session tend to obey seasonality trends 

While the NYC squeeze may continue, it would not be surprising to see this NYC buying pressure instead dissipate if they begin to take profits


In fact, we already saw some signs of profit taking on ETH following its 70%+ pump 

The red dots below signify the whale accumulation at the lows throughout July's bottom 

The blue dots show both whale and retail traders have shifted to selling/profit taking to start August


This is something 2be mindful of as things advance, July's NYC session bullishness does not guarantee the continuation 

But, if we see  NYC bid start2pick up again end of this week and into next it will be a strong signal that higher highs are in store for the end of summer




For a more detailed discussion on our NYC session research and its intricacies please read, subscribe, and share our weekly Espresso update below https://jarvislabs.substack.com/p/the-rising-trend


NYC Volatility

Last month we covered the funding rate model and how it can be deployed as a potential trading strategy. That led to few enquiries on longer holding period and returns. Let's cover that in this thread. 

To recap, when funding rates go negative, analysts discuss about a possibility of reversal. So we dug a little deeper. 

https://twitter.com/Jarvis_Labs_LLC/status/1541768903474532353

The conclusion earlier was that, keeping the holding period tighter (8 hours) yielded the best combination of returns and max drawdown. 

https://twitter.com/Jarvis_Labs_LLC/status/1541768938320805894?s=20&;t=W-FikhicvlQ6dkHp2H2ryQ

To quantify this a step further we used this information to create a ratio which measures each strategy's cumulative profits since Jan. 2020 vs their maximum drawdown during that same period 

The higher the ratio, the greater potential reward vs historical risk potential


Here we saw the best performing strategy was again the 8h trade 

Not only were 8h cumulative returns highest @ 212.74%, they also had the lowest max drawdown of only 14.77% 

This resulted in an 8h return/drawdown ratio of 14.40, ~35% higher than the 2nd place 16h strategy


We also observed that in each time frame beyond 8hr cumulative profits diminished while max drawdowns increased 

So longer the trades were held, the risk probability increased as reward probability decreased 

A bad combination which resulted in lower ratio scores


We hope this thread brings more clarity to the debate of trading negative funding 

It is our data based belief that negative funding presents profitable opportunities, but opportunities on specifically short timelines which need be carefully managed by traders


Funding rate model (Follow-up)

ETH has been performing very well past week. 
Although, there is an interesting behaviour on FTX-Perp to take note of. 
Let us dig into it in this thread. 

Anomalies in markets are typically a sign of unsustainable price action taking place. 

During ETH's seismic 60%+ pump over the past week we noticed one such alarming anomaly unfolding, and we found it on FTX's leaderboard...


What alarmed us was Eth-Perp futures contracts being FTX's most heavily traded product. 

You see, BTC is not only the leader in crypto by market cap, it is also the daily leader in perp trading volume...most days. 

This meant ETH-perp outpacing BTC-perp was an anomaly.


Anxious for answers and historical precedent for this outlier event we back-tested the data to get a better handle on what we should expect next. 

The result was this chart below which shows us ETH-perp ratio (yellow chart) laid below the ETH/BTC ratio price (blue chart)


The blue "ETH/BTC" chart shows us how much BTC a single ETH is worth, at time of writing this = ~0.07, which means 1 ETH buys 0.07 BTC. 

When the yellow "$ vol ratio" chart > 1 it means ETH-perp dominating market volume -- an anomaly that generates the red dots you see below


As we can see judging off historical data above, previous instances of ETH-perp leading the market have been a bearish signal for the ETH-BTC ratio

It has consistently been a strong indicator of the alts market becoming exhausted while reaching euphoric peaks vs the BTC pair


Not only is this ominous for the ETH/BTC ratio, it may mean a potential correction on BTC too.  

The chart below shows the same yellow "$ vol. ratio" chart laid below BTC price. Last week it generated it's 1st "sell signal" since early May, just prior to the Luna/UST crash


And while this alone isn't a sign of a perfect top, its an indicator that warrants extreme cause for pause. and look for further confluence of indicators 

Consider this a good caution to take profits or hedge, or resist FOMO if sidelined until macro uncertainty settles


You can read the unrolled version of this thread here: https://typefully.com/Jarvis_Labs_LLC/V0GcJLK

FTX's ETH Volume Anomaly

Lot of noise and news about 'alleged' Microstrategy #BTC wallets draining out in full. Tesla's partial exit from BTC holdings in their treasury adds more fuel to this noise. Let us take a look in this thread. 

The 'alleged' #MSTR #BTC wallet is 1P5ZEDWTKTFGxQjZphgWPQUpe554WKDfHQ, which is revered to be a top trader wallet. 

However, if you were to do a full-fledged backtesting (volume-weighted buy in green, sell in red).
Profit if you simply did Hodl : 569%
Profit if you did copytrading of this wallet : 9.93%


Since the above data was for the entire duration of the wallet's existence. Let us take a 1 year data slice. 
Returns on hodl BTC : -61%
Returns on copytrading of this wallet : -4.9%

So the wallet drained all the funds in past days and all sits in the wallet highlighted in the chart. 

Filter the noise about this wallet if you hear it in social media often. The alleged wallet drain basically now sits in a new wallet. Likely another custodian wallet of CB/Gemini. Same as the 1P5ZEDWTKTFGxQjZphgWPQUpe554WKDfHQ wallet which is also likely to be CB's. 

Wallet labels are incredibly complex and a sensitive topic. As they lack confirmations from the concerned party most of the time. So take such noise with a grain of salt. 
Relax, he has not been selling yet, even if assumed it was Saylor's MSTR wallet.

You can read the unrolled version of this thread here: https://typefully.com/Jarvis_Labs_LLC/8yJQD6w

Alleged Saylor's BTC wallet

Markets run on trends and momentum. 

We can measure both with 30d returns. A metric that shows the short-term profit & loss of the market as a whole. 

This chart shows ETH's 30d returns moving towards 0% after being deeply negative since April & below we unpack the idea...

Quick explainer: 30d returns measure the short-term profit and loss of the aggregated market at a given time. 

% returns reflect the PnL one would get assuming they bought 30d prior & held. 

When this metric trends >0% = bullish pa 
When this metric trends <0% = bearish pa

In bull markets, 30d returns dip below 0% are prime buying opportunities and in bear markets, the flips above 0% are ideal selling opportunities. 

We compare current ETH 30d returns structure to Q4 2018 

That fall ETH consolidated in the low 200s, before falling to near $82 in Dec. Additional 60% drop that sent it down over 90% from ATH on the year

A repeat of this fractal now would bring ETH to the 400$ range by Dec 2022

Another look at the same chart shows more symmetry 

In 2018 there was 30d diminishing return resistance, and a key price resistance level at ~$350. This resistance held firm for 28mos until Q3 '20

In 2022 we again see diminishing 30d returns and a key lost support level ~$1700

If this fractal were to replay itself all pumps up to the $1700 level will trigger sell-offs for the next 1 year. 

Conversely, a flip of 1700 from resistance back to support would be equal to summer 2020's flip of ~$350 and could signal the start of a brand new bull run

However, charts as badly damaged as ETHs will not repair themselves overnight 

A reconquer of $1700 will require many months of consolidation 

Short-term rallies to the 1400-1700 range are possible but should be viewed with caution as they're likely to be met by strong selling

Please keep in mind, this analysis does not take into account of ETH 2.0 merge event. That is a wildcard. 

If and when these levels are flipped we'll hope to see confluence from our A.I. & quantitative metrics -- none of which are signalling that a macro ETH bottom is in yet 

As soon as this changes, our readership will be the first to know 

Join us in patience and subscribe below

Check out @MrBenLilly's latest espresso update. 
https://jarvislabs.substack.com/p/the-missing-bucket

ETH 30d returns outlook

/1: Funding rates went negative. Now analysts are saying its time to go long and a reversal is coming. Is there any truth to this?

Today we see what the data says and showcase a strategy you can employ to grab some alpha. #BTC

/2: To start off, funding rate is defined as the cost to hold a perpetual futures position open. Each exchange has subtle nuances to this, but generally speaking it updates periodically throughout the day and has a baseline where long positions pay short positions.

/3: Now when funding rate goes negative, it implies that traders going long are actually getting paid to keep the position open by those going short. This is not normal in the market.

/4: Because of this anomaly, it means funding rates can act as a gauge of trader sentiment. 
The more crowded a particular trade gets, the more extreme funding can become. In bull market it's not odd to see 0.2-0.3% funding every 8hr, which translates &gt;  300% on an annual basis.

/5: What this all means is the funding rate mechanism creates a bit of mean reversion. As rates goes negative, they should revert back to their normal positive funding rate.

Which is why we wanted to test whether or not there is a way to make repeatable profit on this - alpha.

/6: To test, we assumed a trader opened a BTC long position the moment funding rates turned negative. Then assumed the trader held the position for 48hrs. 

The results showed lots of time below 0% returns, not ideal. 

/7: But what if we reduced the time the position was held? Say 8, 16, and/or 24 hours? 

The chart below shows these three windows. As you can see, substantial improvement. So just how substantial?

/8: The chart below is the backtest results of each strategy since 2020. 

Green = buy and hold
Yellow = 8hrs
Orange = 16hrs
Red = 24hrs

Winner -&gt; 8hrs

/9: Just how big of a winner was it over the second place 16hr strategy? 

Here is the 8hr stats

Sharpe: 0.84
Time in market: 14%
Total Returns: 227.67%
Max Drawdown : -14.77% 

/10:

16hr stats

Sharpe: 0.7
Time in market: 20%
Total Returns:  186.36%
Max Drawdown : -19.67% 

/11: 8hr strategy is the winner. What we also see is what we term greater capital efficiency. 

The trader only needs to deploy capital in less than six of the 24 months in this backtest.

/12: What should be noted here is even in March 2020, these long-only strategies provided their best returns. You can see this in the heatmaps for both strategies. 

The returns in March 2020 for the 8hr strategy was over 31%. 

No leverage, just spot. https://medium.com/crypto-alpha-drip/the-signal-in-bitcoins-funding-rate-e19abee4842e 

/13: Moral to the story here... 

No need to dismiss negative funding the next time you read about it on Twitter or from your favourite analyst. There is hidden alpha in that indicator. The key is in knowing how to squeeze it out. Next 12 months is going to be interesting.

/14: If you enjoyed this thread, you can read the full post here:

Subscribe to our newsletter Espresso (link). We are restarting Espresso to regularly bring you market updates and crypto insights using our newly built on-chain data infrastructure. https://jarvislabs.substack.com/

Dissecting Funding Rate model 

Whale Holding delta - #ETH

Whales are continuing to accumulate ETH, their accumulation remains in sideways-to-uptrend. 