There are thousands of altcoins in crypto, and honestly, it is frustrating to select a few from the lot and not regret when every altcoin except yours comes together.
Before getting to the heart of the matter, here’s a disclaimer / note:
Note: None of the metrics are intended to be used as a stand-alone indicator. Combining these on-chain metrics with technical analysis gives the best result
A not so overwhelming version
Create a filter to follow altcoins you like or find interesting and follow the price until you find a high probability pattern, then trade it.
A detailed version
I use Santiment’s filter to add the best altcoins I like and track the metrics that help me sort the tokens into a handful that I can trade.
Here are the metrics I use:
1. Market value to realized value (MVRV)
This metric is pretty straightforward, it tracks the NLP (profit / loss) of investors who bought an altcoin, depending on the time frame you provide.
For example, the 30-day MVRV for BTC tracks the PNL of buyers who bought BTC in the past month.
This is an oscillator, so it has a “zero line” and the MVRV line varies from that baseline.
A sudden spike in 30-day MVRV (say 50%) suggests that 50% of investors who bought BTC in the past month are profitable. When this happens, readers can expect a drop since investors can make a profit, driving the price of BTC down.
Previous peaks can be used to determine a local peak.
(Red circles = local peaks, Black circles = local backgrounds)
On the contrary, a drop below the “zero line” suggests that there are widespread selling and that investors who bought BTC in the past month are at a loss.
Typically, market makers or whales tend to buy when the market panics. (A similar trend is seen in the Forex markets where banks and institutions buy panic, this is how the supply and demand zone is formed using order blocks.)
Therefore, a negative value for the 30-day MVRV is referred to as the “zone of opportunity” because it gives whales the opportunity to accumulate BTC.
So in my filter I sort the altcoins by 30 day MVRV and select the five most oversold altcoins.
2. Daily Active Addresses (DAA)
This metric paints a picture of user interaction with the blockchain of a selected asset. If the DAA is around the average, it suggests that investors are interested in this asset.
I use this to gauge investor interest, very similar to how social volume or social dominance is used.
Note: For ETH, DAA metric does not give the full picture due to DeFi and smart contracts.
3. Number of whale transactions
This measure tracks transactions valued at $ 100,000 or more. Typically, seeing a massive peak in this metric coincides with a local peak.
In theory, if an altcoin’s DAA has fallen and the whales’ transaction metric increases, that would be a telltale sign of an incoming decline.
Personally, I use this metric to see if there will be any whale selling activity. Another measure that complements this index is the Procurement on the stock exchanges, which can be used to gauge the potential selling pressure of a particular altcoin present on an exchange.
Disclaimer: This is NOT financial / investment advice.