Morgan Stanley MS has introduced a new indicator that can potentially forecast the price of Ethereum ETH/USD based on speculative activity among traders.
What Happened: The PAVA (price-adjusted volume per address) indicator differentiates price movement based on market fundamentals from price movement based on network usage, reported CoinDesk on Tuesday.
PAVA is calculated by dividing ETH’s price in U.S. dollars by the ratio of blockchain transaction volume to active wallet addresses (90-day average).
“The key assumption for the PAVA indicator is that the blockchain, or specifically the layer 1 blockchain, is valued as a network,” wrote Morgan Stanley research.
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PAVA divides the crypto market into two groups: believers and speculators.
While believers are defined as those that are more integrated into the ETH ecosystem, speculators are largely traders that bet on short-term price movements.
A higher number of believers corresponds to more staking and DeFi activities, which increases transaction volume and lowers the PAVA value. A higher number of speculators causes a larger spike in active addresses than transaction volume, which leads to a higher PAVA value. Historically, PAVA has fluctuated between 0.1 and 0.29.
The indicator is reportedly better at identifying lower market extremes. It recently dipped below the lower bound of 0.1 before ETH hit a bottom of $880 on June 18.
The chart shows that as of Aug 7, the PAVA indicator was hovering around 0.21.
Price Action: At press time, ETH was trading at $1,674, down 5.77% over the last 24 hours, as per data from Benzinga Pro.