Given the transparent responses to a poll I ran recently on the usage of rich-lists in fundamental analysis of altcoins, I learned that despite most being well aware of the utility of these tools, few implement them in their analyses, predominantly due to insufficient knowledge of the approach itself.
In truth, the methodology is exceedingly simple, if a little mundane, but clearly not widely understood or recognised. The insight provided by this analytical approach is somewhat astounding and often critical to my own decision-making, and so the idea that so few utilise it was a little alarming. If anything, rich-list analysis is, for me, the proof in the pudding that my technical analysis has substance, providing confidence in longer-term positions, as well as preventing reckless investment into projects that are being sold off by the largest holders.
The core aim of rich-list analysis is simply to determine the balances of the largest holders and monitor their movements over time, mapping this against price-action to determine whether investment at current prices is wise or unwise. This is based on the theory that the largest holders of an altcoin are the ones that are able to manipulate its price, as they control the majority of its supply; thus, they are deemed ‘smart money’.
Following said smart money is the surest way to success in this space, irrespective of outside fundamentals or technicals; more often that not, those that control the supply are going to make a return on their investments, at the detriment of the majority who enter or exit too late. Keeping our eyes fixed firmly on the movements of these holders prevents us from making the same mistakes as the majority; in particular, for newer, inexperienced speculators, it can provide the all-important confidence in one’s investments that bolsters weak hands. Moreover, I have found the approach extremely helpful in highlighting prime areas for accumulation; namely, when the price of an altcoin has reached an historically-significant area of support and this is coupled with the largest holders adding to their balances en masse.
As mentioned, the approach itself is very much straightforward. It is simply a case of meticulous record-keeping. The approach is as follows:
- Navigate to the block explorer of the altcoin you wish to analyse. For our purposes, this is Stratis and the explorer can be found here.
- From here, navigate to the rich-list or Top 100 tab. In our case, this is labelled Rich List.
- Now, note down the date and time and take a screenshot of the top 20 addresses. I tend to save this in a specific folder for the altcoin I’m analysing and label the screenshot something like “4th November 2019 – Top 20 Balances”. Given that we are using a Chainz explorer, our screenshot will look like this:
- As we can see, this screenshot provides us with an overview of the balances of each of the top 20 largest unique addresses, as well as a breakdown of distribution and – thanks to the transparency of Chainz – a label for each address that belongs to an exchange. Now, there is a point I’d like to make here before we move onto the next step, which is that not every explorer will provide all of this information. Secondly, just because an address is labelled Binance or Bittrex does not mean that this address is actually owned by the exchange; it could be a privately-owned address on an exchange, like your own balances are on those given exchanges. In this case, it takes some simple assumptions being made to figure out what is going on. If you look at the top 100 addresses, you can see that only one is labelled Binance (the first); given that Binance is the most prominent exchange for Stratis, clearly the first address (the richest) is not privately-owned, but rather it is likely to be a hot address at which Binance store users’ STRAT. This is unlike the other exchanges labelled, particularly Bittrex, which has a large number of addresses labelled. From this, I can assume that each of these belongs to a user storing their STRAT at Bittrex. In effect, these facts are relatively insignificant, as our purpose is simply to determine the activity of the largest holders, particularly of those that store their coins off-exchange (the unlabelled addresses). Nonetheless, I like to keep note of these things.
- Another thing to note in the above screenshot is the ownership of the top 10 addresses, which, in this case, amounts to 36.49%. This is very significant, as it shows us that over a third of all STRAT belongs to 10 unique addresses; more concentrated ownership facilitates freer manipulation of the underlying market, as large holders are able to use their balances to push price around. It is important to monitor the overall changes in top 10 distribution over time, as we shall continue to cover in subsequent posts, as this will give us an idea whether, on balance, the larger holders are accumulating or distributing.
- Now that we have our overview, I want you to make a note of the number of inactive addresses in the top 20. Inactive here refers to addresses that have had no transactions in the past 30 days. In our case, we can see that 6 addresses are inactive: the sixth, eighth, tenth, twelfth, fourteenth and sixteenth-richest. These are holders that are content with their balances at current prices, seeking neither to accumulate nor distribute. We can ignore them for now.
- Moving on, we must look more closely at the remaining addresses. As such, I will open up a new tab for each of the 14 remaining addresses. To give you an idea of what you should be seeing for each address, here is a screenshot:
- What we can see in the above screenshot is a detailed breakdown of the activity of the individual address. Further, we can see the wallet it likely belongs to (Guesstimated Wallet) and the current balance. Firstly, I’d like to note that now that we know which wallet this address likely belongs to, if you click through to the wallet on a new tab, you can see that there are estimated to be 66,790 STRAT addresses on Binance. This particular address, which remains the single richest STRAT address in existence, is likely then to be the staking address used by Binance users to stake their STRAT on the exchange. The next largest address on Binance is significantly smaller, as can be observed from the wallet page, at 45,000 STRAT. This isn’t information I tend to keep in mind but I wanted to highlight it here so that you know what exactly we are looking at.
- More important for our purposes is the Transactions area that follows the address details: here, we can find out the exact movements of STRAT into and out of this single address for any given time period. The first step is to click the Filter button next to the CSV button. This will open a drop-down menu allowing for more transactions to be viewed, as well as the option to remove certain types of transactions (Received, Sent, Stake). Again, not every explorer allows for such convenience – Chainz is particularly useful in this regard.
- Untick Stake, as we are not interested in how many coins have been staked. These are regarded as surplus to our purposes. You should now see a list of inflows and outflows. Quickly scroll down to the bottom of the page and figure out how far back these transactions go. We do this because we want 30 days-worth of data and need to know whether to view more transactions using the drop-down menu. In our case, there are an abnormal number of transactions given that this address is actually a staking address for Binance users; given this fact, I would actually altogether ignore this address because it tells us nothing about the individual accumulation or distribution patterns of the largest holders. Instead, I would move onto the second-richest address, which you can see below:
- This is a far better example for our purposes: it is the second-richest address (the largest on Bittrex, however, of some 70,000+ addresses) and it has no staked transactions as all coins are being held on the exchange. Scroll down and see how many days of data are visible; in this case, we can see that 100 transactions is plenty and extends beyond the 30 days required. As such, scroll down to the single oldest transaction in our 30-day period, which would be any transaction after 5th October 2019. In this case, this is a transaction on 14th October 2019, as seen here:
- Now, the important bit: here is where we meticulously keep records, and you can do this via well-organised screenshots or, as I prefer, a journal. Note down the current date, address rank, the address balance on the date preceding the first transaction of the 30-day period, the current address balance and, finally, the net change in balance across the period, as such: Date: 4th November 2019; Rank: #2; Balance at beginning of 30-day period: 5,714,708 STRAT; Current Balance: 5,329,623 STRAT; Net Change in Balance: -385,085 STRAT.
- Over the past 30 days, the second-richest STRAT address has distributed 385,085 STRAT from its holdings. This is precisely what we are monitoring. This is what we have to keep meticulous records on as the weeks progress. so that we may acknowledge and evaluate the overall trend of movements among the larger holders.
- I do this for every active address in the top 20, keeping note of all of the aforementioned details. This I do for the first week of rich-list analysis, culminating in a table of the net changes in balance across the past 30 days for all active top 20 addresses. After the first week, as we shall see in later posts in this series, I switch to measuring the differences in fortnightly balances, as this is the interval at which I monitor.
- My results for this first instalment of the rich-list case study on Stratis are as follows:
- #1: N/A (Binance staking address)
- #2: -393,804 STRAT
- #3: +4,904,794 STRAT
- #4: +680,630 STRAT
- #5: N/A (only staking across past 30 days)
- #6: N/A (inactive address)
- #7: N/A (only staking across past 30 days)
- #8: N/A (inactive address)
- #9: N/A (only staking across past 30 days)
- #10: N/A (inactive address)
- #11: N/A (only staking across past 30 days)
- #12: N/A (inactive address)
- #13: N/A (only staking across past 30 days)
- #14: N/A (inactive address)
- #15: -182,242 STRAT
- #16: N/A (inactive address)
- #17: +117,499 STRAT
- #18: N/A (only staking across past 30 days)
- #19: N/A (only staking across past 30 days)
- #20: -1,200,000 STRAT
As we can see from the above results, this is significantly different to what we may have expected initially, particularly given that only 6 addresses appeared inactive to begin with. Instead, we have found that another 7 addresses are only currently staking, with no transactions beyond stakes for the past 30 days. As such, only 6 of the top 20 addresses have had any meaningful changes in balance.
What I tend to do at this point is collate the data and draw up some preliminary conclusions. In this case, we can make the assumption that the vast majority of the largest holders are simply content with their present holdings, seeking neither to accumulate nor distribute at current prices. Of the 6 addresses with meaningful balance changes, we can see that 3 have experienced net inflows and 3 net outflows over the given period. Further, the cumulative net change in balance of these addresses is +3,926,877 STRAT over the past 30 days.
Now, on the surface, that would seem mighty bullish; we have a net change of approximately +4% of the circulating supply into the hands of the top 20 addresses. Unfortunately, this is too simple an assumption to make and we must look towards the nature of the transactions themselves to determine whether this conclusion is valid or not.
For example, take the 3rd-richest address: it has one transaction on 29th October of +4.9mn STRAT; that is huge. But we can’t know for certain whether this is a transfer from one address to another, owned by the same individual, or the result of accumulation from an exchange, at least not based on the transaction amount alone. In fact, more often than not, I tend to find that addresses with very few transactions, of which the inflow is a single large transaction, are simply the product of transfers between addresses owned by the same individual. This can be for privacy reasons or otherwise, but it is not uncommon to have a large balance transferred between two privately-owned addresses, as opposed to transferred in off an exchange. In the case of accumulation, what we are looking for is the latter, as this is suggestive of an individual buying coins on an exchange and then transferring them to a cold address.
If you click on the individual transaction of the 3rd-richest address, you should see this:
What we can see here is that the total amount of STRAT was transferred from Bittrex to the address in question, making it the 3rd-richest address on the network. As such, we can safely come to the conclusion that was not a transfer between two privately-owned cold addresses.
To conclude this first instalment of the rich-list case study on Stratis, I’d like to outline what exactly I am looking for if I am seeking to buy a coin and what I hope to see in two weeks time:
- Cumulative net inflow to the top 20 addresses, accounting for possible private transfers.
- Majority addresses in accumulation or neutral; the fewer the number of distributing addresses, the better.
- Accumulation to be occurring at prices of historical significance and whilst price is range-bound (see below for a current chart of Stratis).
- Continued growth in the balances of the top 20 as the weeks progress.
I hope the first post of this series has been insightful for those of you that have been struggling with the concept of rich-list analysis. Based on today’s results, we can be moderately confident that current prices for Stratis are attractive to smart money, given the increase in holdings over the past 30 days of the top 20 addresses. However, it is not until we have established a clear pattern across the following weeks that we can be certain.
I look forward to writing up the next instalment of this rich-list case study in a fortnight.
As ever, if you have any comments or questions, feel free to leave them below.