Just over a month ago, we launched a compendious set of metrics on deposit addresses, which can help our users spot dump preparations and analyze the overall levels of speculative interest in a coin.
We’re once again expanding our on-chain coverage of crypto exchanges, this time by releasing 4 new metrics that explore the other side of the coin – withdrawal addresses.
What are withdrawal addresses?
There are 3 main types of transactions associated with all crypto exchanges:
- Coins move from a personal wallet to a temporary (deposit) address, created by an exchange for each user
- Coins move from the deposit address to the main exchange wallet
- Coins move away from the main exchange wallet to another address
Our deposit metrics centered on the activity of the temporary/deposit addresses that facilitate all user-to-exchange transactions.
The focus of our new withdrawal metrics is on the last transaction type – the movement of coins away from the main exchange wallets.
With that in mind, any transaction from the main exchange wallet to another address is considered a withdrawal transaction, and said address a withdrawal address.
Most of the times, withdrawal addresses are personal addresses owned by exchange users; these are labeled ‘withdrawal addresses’ when the user transfers tokens to his address from the exchange wallet.
However, a user can also withdraw coins from Exchange A directly to the deposit address of Exchange B. In those cases, the withdrawal address is simultaneously a deposit address (belonging to Exchange B). Over the last few months, this situation applied to about ¼ of all withdrawal addresses.
Why do withdrawal addresses matter?
Similar to deposits, withdrawal addresses can help us unearth critical information about a network’s behavior:
- Paired with deposit addresses, the total number of withdrawal addresses is a fairly reliable proxy of the overall levels of speculative interest in a particular coin.
- Relying on network-level metrics (for example, total transaction volume) doesn’t tell us what goes on in segmented pockets of network activity. Observing withdrawal-specific data lends an extra level of granularity to your market analysis.
- Monitoring the activity of withdrawal addresses can help us examine and sometimes even foresee market events. For instance, a sudden spike in withdrawal activity may indicate the last leg of a price rally, as coins begin moving out of the exchange and the speculative interest in a network subsides.
Our New Withdrawal Metrics
With all this in mind, we have created and published 4 new metrics centering on withdrawal addresses, each from a distinct angle:
- Number of Daily Active Withdrawals (DAW)
- Share of daily active withdrawals in daily active addresses
- Withdrawal-related Transactions
- Share of withdrawal-related transactions in total network transactions
They’re already live and available exclusively in SANgraphs.
They’re also way simpler than they sound, we promise. Let’s break them down:
- Daily Active Withdrawals (DAW)
Daily active withdrawals (DAW) show the number of unique withdrawal addresses that have been active on the network on a certain day.
Note: do remember that a withdrawal address can simultaneously be a deposit address. Here’s an example of such a scenario, where a user withdrew 9.99 REP from Kraken directly to a Binance deposit address.
Similar to deposit addresses, a spike in daily active withdrawals could indicate an impending price decline. As an example, let’s look at daily active withdrawals of REP, Augur’s native coin, over the last 12 months:
There are several clear spikes in REP-related withdrawal addresses – most notably on 07/22/18, 10/24/18 and 01/18/19 – all of which preceded a swift price dip.
And while it is true that deposit and withdrawal addresses can exhibit similar behavior, their action is by no means homogeneous. For example, here’s the number of daily active deposits related to MKR (Maker) over the last 30 days:
The spike in daily deposits coincides squarely with the local top, making it a good, tho immediate indicator of an upcoming retraction.
Looking at MKR’s daily active withdrawals, on the other hand, would’ve alerted us to the changing tides a full day earlier, giving traders more time to exit their positions or reshuffle their portfolio:
- Share of Daily Active Withdrawals in Total Daily Active Addresses (SDW)
This metrics calculates the relative share (%) of daily active withdrawals in the total number of daily active addresses (DAA).
Our DAA metric, which tracks a total amount of Daily Active Addresses, counts 4 different types of addresses interacting with the network on a daily basis:
- Deposit Addresses
- Main Exchange wallets
- Withdrawal Addresses
- Other addresses not related to exchange activity
SDW, by itself, accounts only for the share of withdrawal addresses (address type #3) in total active addresses. That said, we’ve also recently released an analogous metric which estimates the share of daily active deposits (address type #1) in total active addresses.
Both of these serve a shared purpose – determining the level of speculative interest in a network over time. Combined, the two provide a reliable upper limit on exchange-related activity and its relative share in total network activity each day.
There is an important caveat here, however: while deposit activity is (virtually) always speculative in nature, withdrawal activity is not. This will depend on how each project’s token economy is set up.
Let’s take Santiment and its native token, SAN, as an example. You can currently stake SAN to gain access to various parts of the Santiment platform and our growing list of on-chain and social metrics. If you withdrew SAN tokens from the exchange with an intent to stake them on our platform, that withdrawal address is not actually involved in speculation.
On the other hand, if you’re a trader that moves tokens to a personal address for long-term storage, that withdrawal address should be considered speculative. Finally, remember that about 25% of withdrawal addresses are actually deposit addresses of another exchange (or another exchange wallet).
Ultimately, SDW is an advanced metric whose context and use case will often be determined on a project-to-project basis. This doesn’t make it useless by any measure, but it does require a basic understanding of a project’s tokenomics for it to be properly utilized.
- Withdrawal-related Transactions
Withdrawal-related transactions shows the total number of transactions involving withdrawal addresses on a particular day.
Similar to our deposit-related transactions, this metric can be used as a long-term indicator of the speculative interest in a network.
Going back to the MKR example, let’s take a look at the asset’s withdrawal-related transactions over time:
There are several higher highs and an overall increase in withdrawal transactions throughout the last 12 months, demonstrating Maker’s continuous rise in popularity.
While the graph may appear a bit noisy, you can spot a number of spikes in withdrawal-related transactions (like on Oct 10th or Feb 23rd) which corresponded to MKR’s short-term price decline. This seems to fit the expected behavior of some traders, as they begin transferring MKR back to their personal wallets for storage once the rally starts losing steam.
- Share of withdrawal-related Transactions in Total Transactions (SWT)
Finally, this metric estimates the share (%) of withdrawal-related transactions in the total number of transactions on a network.
Analyzing only the net number of withdrawals won’t let us gauge their relative stake in all network transactions, which is what SWT was designed to do.
The primary goal remains to measure the level of exchange-related activity over time. As an example, let’s take a look at the SWT for Iconomi (ICN) over the last 2 years:
There was quite a telling spike in SWT back in July 2017 right after the peak, as the “panic HODL” came into effect. We can see similar spikes in SWT coinciding with the price dips in September 2017 as well as the end of January 2018.
Try our new Withdrawal metrics today!
As you can see, our Withdrawal metrics can help you spot dump preparations, analyze the level of speculative interest in projects that matter to you and much, much more. Paired with our recently-released Deposit metrics, they can be a powerful tool for analyzing any coin’s exchange-related activity, which often has a direct impact on its price.
Try them today, exclusively on SANgraphs!