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As a variation on the theme of smart money investing (see trading crypto with Nansen smart money), we put Nansen multi-chain data to the test. More specifically, we evaluate asset flows on various cross-chain “bridges” as indicators to invest in different L1/L2 native chain tokens.
Our thesis is that, as more assets are bridged over to new chains or to L2 scaling infrastructure, the associated demand for the underlying chain token and the fundamental value of this token are both likely to increase. This should in turn support the native chain token’s price. Here’s what we found…
Return indices of two strategies selecting the top 3 native chain tokens with, respectively: the larger net USD inflows (g.) and net depositor increase (h.), vs Monte Carlo and ETH benchmarks, over July 2020-March 2022:
As you can see, following bridge flows worked out really well for the 57 tokens we analyzed! By investing in the tokens with the most amount of flows (both dollar wise and number of users), the simulated portfolio performed much better than buying ETH and our Monte Carlo simulation.
This analysis includes the great crypto bull run of late 2021, which probably helped boost the returns presented above. However, a random selection among the 57 native chain tokens over the same bull period would have underperformed the bridge flow strategies, which is encouraging. We’ll follow up with additional analyses including “live” data, stay tuned!
And for the more technically inclined, please refer to our research paper "Using Nansen Smart Money and Bridge Data to Simulate Tactical Investment".
Special thanks to the following Nansen Explorers for their contributions.
Attribution:
- Darren Lim, Research Analyst
- Cristian Falcutescu, Research Engineer
- Daniel Krupiza, Senior Research Engineer
Nansen Query:
- Ko Miyatake, Full Stack Engineer
- Jason Xu, Sr. Product Manager
