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How are Bitcoin and TradFi products packaged? Muddy Chain Analysis



How are Bitcoin and TradFi products packaged? Muddy Chain Analysis


On-chain analytics is an important part of the Bitcoin ecosystem. This helps show activity on the network and can give a good indication of what investors think about the digital asset. At first, on-chain analytics deserved a lot of respect in the space. However, several things have muddied the waters of on-chain analysis. These raise questions about on-chain analysis and whether they are really as accurate as before.

Are Wrapped Bitcoin and TradFi Neglected?

When it comes to pure on-chain analysis, the analyzed data is very important for the credibility of the report. This becomes a problem when these on-chain analyzes do not take into account new avenues of investment that could affect the liquidity of bitcoin. Not only that, but the activity of investors when it comes to the digital asset. Things like traditional finance (Tradfi) and Wrapped Bitcoin (WBTC, BTCB) have moved to bitcoin, necessitating changes to the way these analyzes are done.

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An example of how traditional financial metrics are circumvented is trading with bitcoins held in custody. Arcane Research notes that approximately 1.1 million BTC are held by funds, public companies and other chains as of January 2020. This means that these are various liquid alternatives that allow investors to trade BTC and that the activities made in these alternatives also play. a role in bitcoin price discovery.

Public Bitcoin Investment Vehicles Grow | Source: Arcane Research

With Tradfi, BTC can be held in funds, and traders can buy and sell these “paper bitcoins”, essentially speculating on the price of the digital asset itself without having to buy it. Given the volume of these markets, they can have a huge impact on digital asset price discovery. It is well beyond the reach of the spot market, but it is still important.

Coins that are held on these avenues can often be labeled illiquid by on-chain analysts because BTC itself remains static, although coins that are also static on exchanges are not labeled the same way.

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“Essentially, relying on on-chain macro data becomes less relevant over time. Marketers must be very careful not to rely too much on relevancy over time. Traders must be very careful not to rely too heavily on the current market structure. That doesn’t mean these metrics are completely useless, but they should always be interpreted with a pinch of solid salt. – Arcane Research

Using Bitwise’s lag analysis and its internal multidimensional information flow analysis, Arcane Research concludes that these realists indicate that cash-settled CME linear futures play a significant role in bitcoin price discovery.

BTC trades above $39,000 | Source: BTCUSD on TradingView.com Featured Image from NewsBTC, Charts from Arcane Research and TradingView.com

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