State of Ethereum

Market Meditations | September 22, 2022

Ethereum’s merge was one of the most anticipated events crypto has seen in recent years. But now it is done, what next?

We can use on-chain data to show how Ethereum behaved, applying the lessons learnt to earn more.

Net Exchange Inflow Reaches New Highs

Exchange flows measure how much of an asset is being transferred to and from exchange wallets. Exchanges can be used to sell an asset with non-exchange wallets often used for longer term holding.

Therefore, in theory, inflows onto exchanges can indicate potential selling pressure. Whilst the reality is often more complex, there is certainly value in this data. 21/09/2022: Eth Tracker Exchange Flows

  • On September 14th, the day before the merge, almost 1 million Eth was transferred onto exchanges.
  • This reversed a long term downwards trend in the number of Eth held on exchanges.
  • One explanation is that investors wanted to be ready to sell their Eth in the case the merge was unsuccessful.
  • However, even though the merge was executed successfully, much of this Eth remains on exchanges.
  • Another is that investors wanted to farm potential airdrops for proof of work Eth. Whilst this token does exist yet, exchanges such as FTX created a market in anticipation of the token launch, airdropping users a new asset based on their existing Eth holdings.

Contract Deployments Reach 3 Yearly Lows

At it’s core Ethereum allows users to build smart contracts – programs stored on the blockchain. We can use deployment of these smart contracts as a proxy for developer activity: 21/09/2022: Eth Tracker – Contract Deployments Per Month

  • Contract deployments are at their lowest levels since May 2017. This indicates low levels of developer activity.
  • Deployments have been running at low levels for the last 12 months.

How Can I Take Advantage of This Data?

1️⃣ Consider potential selling pressure for Eth. Exchange inflows of Ethereum reached their highest levels in 2022 and whilst the merge was executed successfully, the majority of this Eth remains on exchanges.

2️⃣ Farm forks for airdrops. This isn’t the first fork and it won’t be the last. These kinds of events give way for potential profits and in this instance investors were able to profit simply by moving the location of their Eth.

3️⃣ Look out for an increase in contract deployments. Decentralized finance and NFTs were both new applications of Ethereum’s smart contract functionality and acted as catalysts for the latest bull run. An increase in contract deployments will show an increase in developer activity and potentially reveal the emergence of a new use case.