In this note, we go through the top tokens selected by the Nansen Cross-Token Price Momentum model. We review: the performance of these tokens since the model highlighted them, how these tokens rank in Smart Money and Funds’ token balances, and how “narrative catalysts” interact with price action.
The graphs in this note are gathered in this Nansen Dashboard.
Tokens with Price Momentum
The Cross-Token Price Momentum model simply selects the crypto tokens with the highest price growth over various lookback periods and averages these growth rates. The assumption behind the model is crypto markets’ reflexivity: price and narratives tend to feed each other leading to “self-sustained” trends.
This dashboard goes through the model. Below is the test of a strategy that follows the model vs a random selection of tokens. The test has been done out-of-sample since 2019 (no parameter optimization), and has been “live” (the strategy is no longer in testing phase) since June 2023. The strategy’s performance is close to the 75th percentile of a “random” token selection strategy (random strategies ranked by total returns).
In this note, we focus on the individual tokens with the top 5 momentum. These are:
- Maker (MKR) in the top 5 since 21 July 2023
- Bitcoin-cash (BCH) in the top 5 since 23 August 2023
- Tron (TRX) in the top 5 since 1 September 2023
- Chainlink (LINK) in the top 5 since 19 September 2023
- Aave (AAVE) in the top 5 since 29 September 2023
Note: As we are about to publish (October 2, 2023), Solana has shot up and joined the top 5 ranking.
All five tokens highlighted above have outperformed ETH from the date of selection: MKR has outperformed by 49.2%, BCH by 19.8%, TRX by 13.2%, LINK by 15.4%. AAVE has just made it to the top and the performance needs time to be measured.
Smart Money Token Strategy
Moving to on-chain data, we go through the holdings on Ethereum of MKR, LINK and AAVE, three ERC-20 tokens among the top 5 tokens highlighted above. We focus on wallets labeled as Funds by Nansen and “Smart Money” wallets, meaning wallets that meet certain criteria, for example that have realized a certain P&L threshold on DEXes.
We find that, whether for Fund wallets or Smart Money wallets, token balances of MKR and AAVE have been rather stable in the past year. In contrast, LINK balances have increased since April 2023, suggesting some net buying from these two categories of wallets.
Even with no significant net increase visible in balances year-on-year for all highlighted tokens, MKR, LINK, and AAVE count among the top holdings of Fund and Smart Money wallets (Funds: AAVE ranks 16, LINK 20 and MKR 28; Smart Money: MKR ranks 7, LINK 20 and AAVE 22 in terms of percentage of USD balance). Smart Money and Funds appear therefore positioned for the price performance of the three tokens.
Price and Catalyst
To conclude, we investigate the potential price catalysts for the top 5 Momentum tokens, by researching the date when outperformance vs ETH started, and what significant announcements or events occurred around each respective date.
We find that the Nansen Cross-Token Price Momentum model has flagged these tokens’ outperformance on average after ~80 days (time span between start of price outperformance and signal). This can appear long, but having a longer time frame reduces the number of false positives in terms of identifying tokens with sustainable price trends.
Interestingly, among the narratives that have acted as catalysts, there are some recurring themes. Increased regulatory clarity has given the confidence to some traditional institutions to come up with crypto offerings e.g. the announcement of EDX Markets backed by Fidelity Digital Assets, Charles Schwab and Citadel Securities, supported BCH’s price. BCH is one of the few tokens tradeable on EDX, probably thanks to the relatively high confidence in BCH not qualifying as a security.
Another major theme has to do with asset tokenization and yield seeking on-chain: MKR’s outperformance took-off after the protocol’s decision to increase DAI saving rate and to rely more real world assets as vault collaterals, including US Treasuries. LINK’s price is also benefiting from the tokenization / partnership with SWIFT narratives.