Author: Murphy, On-chain Data Analyst
On-chain Data Assessment Model - Shanzhai Season
One day, while I was in class, Xiao Chi @FC_0X0 sent me a WeChat message saying: 'There is a piece of data, which is the scissor difference between the total inflow of stablecoins into exchanges and the dollar value of BTC withdrawn, which suggests that the remaining potential purchasing power may have a direct relationship with the volatility of altcoins. Can we use this logic to look at the timing of the start of altcoins?'
Coincidentally, my presentation also mentioned the observation of potential conditions for 'capital outflow,' which corresponds to the timing of certain large-cap altcoins. However, at that time, it was just a rough outline, and I vaguely thought of some previously overlooked areas...
After returning, I organized the data and, inspired by the ideas from Xiao Chi, rethought a set of visual indicators that can effectively determine the 'Shanzhai season.' Below I share my thoughts:
Shanzhai Season Condition 1: Capital Outflow Condition Assessment
(Figure 1)
In Figure 1, the green indicates whether the total scale of stablecoins flowing into exchanges within 30 days is greater than the dollar value of BTC being withdrawn from exchanges. If so, it implies that besides buying BTC, there is also a possibility of outflow to altcoins. The higher the green signal bars, the greater the theoretical outflow value, thus providing stronger preconditions for the start of the Shanzhai season.
From the data, during the periods of 2023.10-2024.3 and 2024.11-2024.12, the theoretical outflow value is highest, indicating that the likelihood of producing a 'Shanzhai season' is greater during these two periods. Additionally, there is a small segment between August and September, but in terms of scale and duration, it is not as significant as the above two periods, and therefore has relatively less impact.
Shanzhai Season Condition 2: Capital Inflow of Mainstream Assets
(Figure 2)
Historically, BTC often leads the overall sentiment in the cryptocurrency market, followed by market confidence flowing into other large-cap mainstream coins, and finally tilting further towards ALT. A tool to visualize this capital rotation is to use the realized market caps of BTC and ETH, along with the 30-day changes in the total supply of stablecoins (as shown in Figure 2). When all three major mainstream assets show net capital inflows, it is considered that market sentiment begins to become exuberant, and overall risk preference rises, which is one of the macro necessary conditions to kick off the Shanzhai season.
From the data, during the periods of 2023.10-2024.8 and 2024.10-2024.12, all three major mainstream assets experienced net capital inflows, peaking in March and December 2024. This is also the point in this cycle so far when market sentiment is most FOMO.
Shanzhai Season Judgment 3: Positive Momentum in Altcoin Market Cap Dispersion
(Figure 3)
The data basis for determining the start of the Shanzhai season requires a third condition, which is to isolate positive momentum in the total market cap dispersion of altcoins. We need to look for periods where the total valuation of the 7D SMA within the altcoin range exceeds the total valuation of its 30D SMA. This can represent a short-term amplification of the valuation of altcoins, and the liquidity flowing into altcoins is rapidly increasing.
In Figure 3, the red line represents the 7D average, and the blue line represents the 30D average. From the data, during the periods of 2023.10-2024.4 and 2024.11-2024.12, the red line crosses above the blue line, indicating that liquidity in the crypto space is beginning to tilt towards altcoins, and the market cap of altcoins is shifting towards a positive growth phase.
Summary
The above three conditions are considered from different angles. Condition 1 represents the possibility of capital outflow; Condition 2 represents overall sentiment and risk preference; Condition 3 represents liquidity tilt. When all three are met simultaneously, it is highly likely that the Shanzhai season is approaching.
Currently, Condition 2 is satisfied, but Conditions 1 and 3 are not; thus, we can consider that the foundation for starting the Shanzhai season is present, but liquidity is still concentrated on mainstream assets (especially BTC), and there is not much outflow of funds to altcoins.
However, we can also see that the 'negative outflow' in Condition 1 is slowly narrowing, which is a positive signal. Although the anticipated Shanzhai season may require some more patience, what is meant to come will come.
