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Wrapped Bitcoin (WBTC) and Wrapped Ethereum (WETH) fared no better when the larger crypto-market bore the brunt of Bitcoin’s southbound rally. Despite the fact that these alts mirrored the same price movement as the top two coins, Bitcoin and Ethereum, certain alarming spikes and dips in their metrics pointed to investor actions and patterns that were notable during this bloodbath.
What do new address patterns indicate?
On July 18, there was an unusual spike in new addresses for WETH, bringing the total number of new addresses to a mind-boggling 3596. This figure was nearly double the previous high on May 1st of this year. While several factors may have contributed, one that stands out and may have been the most significant is the drop in gas prices.
In fact, the chart below clearly shows a link between low gas prices and an increase in new WETH addresses.
Furthermore, it was noted that the number of new WBTC addresses had been declining since 15 June, with the number of new addresses testing October 2020 levels at the time of writing. While the total number of addresses does not always indicate a bearish or bullish trend, it does indicate the possibility of increased liquidity in the DeFi space.
A blog by Consensys had recently pointed out that the rise of decentralized exchanges (DEXs) and the rise in their trade volumes could be attributed to WETH which makes it simple to swap ETH for any other ERC-20 token.
Maker DAO activities include liquidation, debt creation, and repayment.
The massive increase in WETH new addresses could also be attributed to Maker’s debt being repaid. According to a recent Santiment report, the last drop in the price of ETH saw new spikes in debt repaid (collateralized by WETH) as participants became concerned about having their assets liquidated.
Looking at general market sentiment through this metric revealed that it is a good indicator of confidence waning. A close examination of the times when this behaviour (debt repayment) occurred on the chart often marked the bottom for a bounce.
Further, another recent report highlighted that no new debt was created, pointing to a lack of confidence from traders to mint new DAI. Strong spikes indicate a high level of pain, and a look at liquidations historically shows that liquidations “tend to pinpoint the bottoms.” It implies that we may see something similar in the case of a rebound.
Furthermore, sharp increases in debt creation suggested the possibility of a further drop in prices. A six-month time span demonstrated how many debts we might want to see for another dip, and it highlighted that there are undoubtedly more than we can see right now.
What about WBTC?
When compared to WETH, WBTC had fewer new addresses. However, looking at its 1-day chart, it was clear that WBTC active addresses had recently reached monthly highs. Furthermore, social dominance for the token has risen to levels not seen since January of this year. This indicated that the token was gaining traction and interest.
That surge in social dominance, however, did not last long and fell precipitously soon after.