Predicting Future Ethereum Movement... Without Looking at Ethereum!?

We have often discussed the trickiness in deriving alpha from Ethereum key stakeholders and studying whale data for hints on future market performance. Though studying whale and shark behavior on Chainlink, Polygon, or even Bitcoin has been historically quite useful in beating the markets (as long as you're paying attention), this has not been the case for the #2 market cap asset in crypto, ETH.

People use Ethereum for DeFi, running applications, buying and selling NFTs, and much more. Because of this, the predictability of large transfers lining up with ETH prices. With so many use cases, it can be challenging to determine why sharks and whales are making transfers. Their movements might be for reasons unrelated to market speculation, like interacting with smart contracts or paying transaction fees, making it difficult to predict market trends solely based on these transactions.

You may not have thought of Wrapped Staked Ethereum (wstETH) in a while, let alone even heard of it. Currently at #202 on crypto's market cap rankings, this is a token that represents ETH that is specifically being staked within the Lido protocol. Lido allows users to stake their ETH and receive wstETH in return. wstETH can then be used in various DeFi applications while still earning staking rewards.

This dual functionality means wstETH holders are often highly engaged and active traders, much more than the ratio of active vs. inactive Ethereum itself on average. Unlike broader ETH movements, which can be muddled by numerous non-trading activities, wstETH transactions tend to reflect more significant trading and investment behaviors.

Similarly, RocketPool Ethereum (rETH) is another staked Ethereum token, representing ETH staked through the RocketPool protocol. RocketPool is a decentralized staking platform that allows users to stake their ETH and receive rETH, which also can be used in DeFi applications.

By focusing on addresses holding 10,000 or more rETH, we can gain insights into the behaviors of mid level sharks related to the price of RocketPool Ethereum, as seen with this beautiful correlation below. Notice the drop in holding in late February, one more leg up of accumulation, and then a big dump in these large holders' wallets:

In fact, Rocketpool itself (RPL), in the large shark/ small whale tier holding 10,000 to 1,000,000 RPL are typically more indicative of broader market trends and sentiment because they are significant enough to matter but not so large that their actions are purely strategic or manipulative. They provided a nice indication of Ethereum's impending March dump as well:

One of the key advantages of analyzing wstETH and rETH holders is that it helps filter out the noise. In the Ethereum ecosystem, many transactions are not directly related to market speculation. By focusing on these wrapped and staked tokens, we can more accurately identify committed and strategic investments that are related to price expectations from holders that carry the power to move them.

By understanding the behavior of these key stakeholders, all of us can gain better insights into market dynamics and make more informed decisions related to Ethereum, and ERC-20 projects.

Let us know what you think!

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Disclaimer: The opinions expressed in the post are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.