Uniswap UNI On-Chain Trading Signals

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Contributor, Benzinga
September 1, 2022

Uniswap is the second largest decentralized exchange (DEX) on the Ethereum blockchain. The Uniswap platform allows crypto users to trade ERC-20 tokens in a mostly censorship-resistant way and without a central intermediary.

Uniswap is also a powerful automated market maker in decentralized finance (DeFi). Automated market makers are a concept pioneered by Uniswap that allows users to trade tokens in a peer-to-peer way using algorithms to set market prices. Users of the Uniswap platform can supply their tokens to a liquidity pool and earn rewards for their contribution from trading fees. 

The supply and demand of the tokens encapsulated in these liquidity pools coupled with the algorithms used on the platform to stabilize pricing are what allow Uniswap to thrive in a decentralized manner. 

Uniswap has amassed over $1.1 trillion dollars in trading volume throughout its life span and executed over 108 million trades. Because of its immense popularity in September 2020, Uniswap minted the UNI governance token for the Uniswap platform. This benefit allows users to vote on governance proposals, fund grants and earn from liquidity pools.

If you are interested in trading Uniswap but don't know where to start, then looking at raw data recorded on the blockchain might be your best bet. Potential buyers can access this information because of the blockchain's public transaction records that can be used to create these trading signals.

These Uniswap trading signals can help provide insight into volatile price action and paint a picture of what the future of a token's price may look like. More precisely, the on-chain trading signals look at crypto wallet balances, holder concentration and exchange inflows and outflows. No signal or indicator is flawless, however, and they shouldn't be used as a crystal ball.

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UNI On-Chain Trading Signals Analysis

Holders Making Money at Current Prices

A majority of all Uniswap holders have unrealized losses on their UNI positions. This metric suggests a few things. It most likely shows that the cryptocurrency market on the macro time frame is in bearish territory and market sentiment is low. It also could serve as an excellent signal of the growth of Uniswap in the next cryptocurrency cycle, meaning that investors who started investing in Uniswap before the 2021 bull run are sitting in profit, but the vast majority of holders are HODLing currently and don't want to realize a loss.

Concentration by Large Holders

Concentration by large holders is one of a few trading signals that likely should be considered whenever trading Uniswap and other altcoins. An 86% concentration by large holders of UNI indicates that Uniswap holdings are not evenly distributed amongst its holders. This level will likely decrease eventually from the 2% inflation rate per year of the UNI token, which is still roughly 250 million tokens per year. These tokens will mostly go to the community, thus reducing the percentage of UNI in the hands of the team and large whales. However, over the next two years, a significant percentage of inflation will be from the unlocking of time-locked tokens, so the concentration by large holders may go up before it falls again. As the cryptocurrency market continues to mature, the concentration of large holders will decrease over time as adoption continues. 

Price Correlation With Bitcoin

According to intotheblock.com, the price correlation of Uniswap to Bitcoin is based on a 30-day metric of the "statistical correlation between the price of Bitcoin and a specific crypto-asset. A correlation close to 1 implies a strong positive correlation between the two prices, a correlation near 0 suggests no correlation and a correlation close to -1 points to a strong negative correlation.” 

UNI’s price correlation with Bitcoin is high, which means Bitcoin's price fluctuations have a strong impact on the price action of UNI. This factor suggests that Bitcoin still has tight dominance in much of the cryptocurrency market and UNI has farther to go before it decouples from Bitcoin's dominance.

Holder’s Composition by Time Held

The majority of UNI holders have been holding Uniswap for over a year, with only less than 2% having held UNI for less than a month. The high proportion of over one-year holders indicates that many investors have a firm conviction in the long-term potential of Uniswap and refuse to sell. This is a great sign for UNI — the more HODLers the better.

Exchange Inflows and Outflows

Exchange outflows is one of the most useful Uniswap trading signals. It refers to the total amount of UNI transferred from exchanges to cold wallets or other alternative methods of custody. Outflows are typically a bullish indicator because supply is drying up on exchanges and investors are seeking to hold long term. Exchange inflows refer to the total amount of Uniswap tokens moved to exchanges. An increase in exchange inflows is normally a bearish sign because holders may be looking to sell their tokens on exchanges.

Interestingly, the number of exchange inflows versus outflows is relatively even. This factor could signal that investors and sellers are not as interested in trading, but most of this volume could be from the Uniswap platform's use case and governance proposals. 

Is Now a Good Time to Buy UNI?

Since reaching a record high of $44.97 in May 2021, the price of Uniswap has declined rapidly, which has led many investors to sell their holdings. According to coinmarketcap.com, UNI is down 86% from its highs, and this could be from the meltdown the cryptocurrency market experienced over the summer of 2022.

However, while many see a despairing and depressing market, others see a fantastic opportunity. Judging by these Uniswap trading signals, UNI seems like it may be poised for a significant rise in value. Periods of great fear in the markets frequently prove to be excellent opportunities to acquire an asset at a cheap price. If you think Ethereum's ecosystem has long-term potential and trading of ERC-20 tokens will only continue to increase, then now can be a good time to start entering a position in the market.

How to Buy UNI?

Investors can buy UNI tokens from several different exchanges, including Binance.US, Crypto.com and Gemini. Some of these exchanges are not available to American citizens, so it is prudent to check and see first if you can use the platform. 

How Does UNI Fit Into the Bigger Picture?

As cryptocurrency is adopted by more people, the demand for exchanges to trade tokens on it should increase. If you believe Ethereum is here to stay, then you would feel confident that Uniswap and other DEXs like it, including Sushi and 1inch, will grow.

DEXs are a new idea and their goal is to create a world where anyone can transact on the blockchain without having to go through permissions granted by a centralized intermediary. Freedom and sovereignty of assets are important to many people, and it will be very interesting to see what the future holds for DEXs as a whole.

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