For today’s subscriber-exclusive post, I figured that I would provide a step-by-step breakdown of my approach to rich-list analysis, looking at VIDT Datalink and its Etherscan explorer for clues as to the activity of smart money. This will be an ongoing series of investigations, published as close to ‘in real time’ as possible.
Many consider rich-list analysis to be obscure, but the methodology is exceedingly simple, if a little mundane.
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 this ‘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 VIDT Datalink and the explorer can be found here.
- From here, navigate to the rich-list or Top 100 tab. In our case, this is labelled Holders.
- 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 “30th October 2020 – Top 20 Balances”. Given that we are using a Etherscan 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 and – thanks to the transparency of Etherscan – a label for each address that belongs to an exchange or to the team. 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. It may well be the case that you have to look more closely at the activity of the address (or simply contact the team to confirm for you). For most explorers, however, this information will be transparent.
- Now that we have our overview, I want you to open a new tab for every address in the top 20 – excluding any exchange addresses or team-controlled addresses – and make a note of the number of inactive addresses. Inactive here refers to addresses that have had no transactions in the past 14 days (usually, this would be 30 days, but as VIDT Datalink recently launched a new contract subsequent to the Kucoin hack, less than 30 days of data is available). In our case, we find that 8 addresses are inactive over the specified period: #3, #5, #7, #8, #11, #12, #18 and #19. 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 look more closely at the address overviews of the remaining 6 addresses. To give you an idea of what you should be seeing for each address, here is a screenshot:
- Here, we can see all of the inflows and outflows from this address (the #1 address on the rich-list, for context). 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 specified (14-day) period, the current address balance and, finally, the net change in balance across the period, as such: Date: 30th October 2020; Rank: #1; Balance at beginning of 14-day period: 0 VIDT; Current Balance: 9,000,000 VIDT; Net Change in Balance: +9,000,000 VIDT.
- Over the past 14 days, the richest VIDT address has added 9,000,000 VIDT, although it did have 0 VIDT at the beginning of the period. 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 14 days (usually 30, remember) for all active top 20 addresses. I then measure fortnightly changes in the top 20 addresses.
- My results for this first instalment of the rich-list case study on VIDT Datalink are as follows:
- #1: +9,000,000 VIDT
- #2: N/A (Binance)
- #3: N/A (inactive address)
- #4: N/A (VIDT Main Wallet – team)
- #5: N/A (inactive address)
- #6: +239,817 VIDT
- #7: N/A (inactive address)
- #8: N/A (inactive address)
- #9: N/A (VIDT Bridge Wallet)
- #10: +200,385 VIDT
- #11: N/A (inactive address)
- #12: N/A (inactive address)
- #13: N/A (VIDT Distribution Wallet)
- #14: N/A (VIDT Validation Wallet)
- #15: +426,323 VIDT
- #16: N/A (Hotbit)
- #17: -50,005 VIDT
- #18: N/A (inactive address)
- #19: N/A (inactive address)
- #20: +330,055 VIDT
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 many of the largest holders are simply content with their present holdings, seeking neither to accumulate nor distribute at current prices. 8 addresses were inactive over the 14-day period and a further 6 were either team-controlled or exchange addresses. Of the 6 private addresses with meaningful balance changes, we can see that 5 have experienced net inflows and 1 net outflow over the given period. Further, the cumulative net change in balance of these addresses is +10,146,575 VIDT over the past 14 days. This equates to 21.9% of the circulating supply.
To conclude this first instalment of the rich-list case study on VIDT Datalink, 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 VIDT Datalink).
- 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 VIDT are attractive to smart money, given the increase in holdings over the past 14 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.