On-chain analysis on the Ethereum blockchain

Abstract

Traditional finance involves two main approaches when it comes to asset valuation, sentiment analysis or other attempted estimations of market variables. The more academically acceptable methods of trying to forecast future magnitudes of financial assets or asset classes based on fundamentals and the attempt to predict price movements using technical analysis, which includes various methodologies. The recent advent of cryptocurrency and the different ecosystems that came along with this invention, have shown an empty space in traditional financial analysis propositions. Other than technical analysis, which needs nothing more than the historicity of price movements, crypto investors, traders and market analysts usually had no fundamental financial subjects of analysis, since traditional finance and accounting categories were more often than not, nonapplicable. This space is being slowly filled with new approaches, which are trying to spot those categories that are essentially fundamental to the formation of crypto asset prices and use them to adequately strategize over future volatility. The purpose of this paper is to showcase some of the fundamental blockchain data and the subsequent metrics that are used in these types of analyses, as well as examine some of these attempts. Focus is mainly put in the case of Ethereum and its native cryptocurrency Ether because of its nature as a network, on top of which, multiple parallel applications have formed, especially in the decentralized financial sector. Through the use of real examples from market analysts and academic researchers, we try to present an adequate understanding of these new methods and how exactly they are put to use. Finally, we notice similarities and differences with traditional asset classes and traditional methods of analyses, in an attempt to bridge the gap among newer and older approaches to finance and financial analysis.