Nansen and Bitget Research released a report analyzing on-chain metrics as predictors of crypto token prices. The key findings suggest that on-chain activity, specifically total value locked (TVL) and fees in Ethereum (ETH), are better predictors of short-term price movements than social sentiment.
The report found significant correlations between governance tokens and on-chain metrics for the Ethereum ecosystem and some other networks. Statistical testing has shown that TVL in ETH and fees in ETH best model contemporary changes in governance prices.
Fees (in ETH) for Ethereum + L2 Ecosystem vs ETH price. Image: Nansen
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 evaluation. For promising early-stage tokens, Bitget focuses on community power, security, and innovation. Their recent product launches such as PoolX and Premarket have facilitated the discovery of over 100 new tokens since April,” said Aurelie Barthere, Research Analyst at Nansen.
For predicting price returns one week in advance, both TVL in ETH and fees in ETH turned out to be important as individual factors. Higher fees and TVL are generally associated with higher subsequent returns.
Specifically, the study used Fama-MacBeth regressions to estimate the risk premia associated with token price returns. This is a commonly used measure by financial professionals to estimate the risk premiums associated with stock market returns.
Sapphire
“In terms of predicting price returns a week in advance, ‘TVL in ETH’ is a significant risk premium in a single-factor model, as is the ‘Fees in ETH’ metric. Both have positive risk premiums or coefficients, meaning that higher fees and higher TVL are often associated with higher subsequent returns,” the analysts pointed out.
The results were more significant when testing chains individually than when merging Ethereum and Layer-2 (L2) chains.