Ethereum Trading Bot Strategy ‘Extracted’ $107M in 30 Days, Research Suggests
Trading bots preying on perceived flaws in Ethereum’s infrastructure have “extracted” at least $107 million in the past 30 days, according to new research.
Popularly referred to as Miner Extracted Value (MEV), the arbitrage strategy sees bots identify and target trades waiting in Ethereum mempools. The bots can use a few observed techniques to profit from the targeted trade. For one, a bot will find a profitable trade waiting in the mempool. Then it will copy that trade and up the gas price for its transaction. That way, a miner will package its copy trade before the original can go through.
“After scraping the Ethereum blockchain starting from the first block of 2020 (9193266), we’ve found a total of at least $314M worth (~540k ETH) of Extracted MEV since Jan 1st 2020,” a Medium article from research group Flashbots states.
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The technique netted at least $57 million or 47,600 ETH in January alone and $107 million in the past thirty days, the Flashbots data shows. For example, this trade Flashbots points to continuously re-bid on a trade so as to protect it from trading bots that noticed it. The original trader was successful, but at the cost of the lurking bots wasting gas on a failed transaction and increasing congestion on the Ethereum blockchain.
One point of clarification about the data, Flashbots Alex Obadia told CoinDesk after publication of this article, is that organizing the numbers correctly remains difficult – it’s more art than science.
“The value we displayed is not from mempool snipers only,” Obadia said. “But anyone looking to perform liquidations or arbitrage, it is hard to identify whether an arbitrage trade was seized by a sender that found it in the mempool vs just found the price inefficiency and fired the trade.”
Trading bots create ‘negative externalities’ for Ethereum
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That second point is more important than a first look may convey. Failed transactions generally increase the average transaction cost on-chain – a sore spot for Ethereum users who have suffered under $20-$30 average transaction fees – in addition to “bloating” the Ethereum by leaving traces of the failed transaction on the blockchain’s state. In other words, MEV creates negative externalities for Ethereum (or any smart contract blockchain).
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It’s important to note that MEV is not always performed by miners but mainly by trading bots often run by market-making firms. In fact, there’s little evidence to suggest Ethereum miners have employed MEV techniques to date. Some Ethereum mining pools have even built custom networks to deter front running – a form of MEV – such as SparkPool’s Taichi Network.
Flashbots’ dataset is only a rough estimate of MEV, the research group warned, as identifying arbitrage bots requires active on-chain management. Flashbots said the group continues to update its methodology to better reflect real MEV values.
Update (February 23, 21:00 UTC): A comment from Flashbots was included after publication.
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Bitcoin and Ethereum See Major Weekend Corrections After Hitting New ATHs
The oversell came soon after veteran trader, Peter Brandt, hinted that BTC could peak at $200k in a recent tweet. However, he also said that it is likely that the coin’s price will go through a deep correction before hitting this price. It is possible that this was the correction he was expecting to see, although it is just as likely that this is only a beginning.
Meanwhile, Elon Musk once again spoke about cryptocurrencies on Twitter, this time in response to Changpeng Zhao. In a recent interview, Zhao noted that he is surprised that Musk is pushing Dogecoin so much, but that he is, ultimately, free to like whatever he wants. However, he did note that it was interesting that Musk’s company, Tesla, bought $1.5 billion of BTC and not DOGE.
To that, Musk replied that Tesla’s action is not reflective of his opinion. Having Bitcoin is a simply less dumb form of liquidity than cash, as he stated.
He did point out that he is an engineer, and not an investor. Later on, in conversation with Peter Schiff, Musk also mentioned in a different context that Bitcoin and Ethereum ‘do seem high,’ potentially hinting that he expects a correction.
Ethereum, Litecoin, and Ripple’s XRP – Daily Tech Analysis – February 23rd, 2021
Ethereum
Ethereum slid by 8.11% on Monday. Reversing a 1.07% gain from Sunday, Ethereum ended the day at $1,778.66.
A mixed start to the day saw Ethereum rise to an early morning intraday high $1,938.95 before hitting reverse.
Falling short of the first major resistance level at $1,980, Ethereum slid to an early afternoon intraday low $1,508.35.
The sell-off saw Ethereum fall through the through the day’s major support levels and the 23.6% FIB of $1,579.
Finding late support, however, Ethereum broke back through the 23.6% FIB and the third major support level at $1,749 to end the day at $1,770 levels.
At the time of writing, Ethereum was down by 1.22% to $1,756.95 A mixed start to the day saw Ethereum rise to an early morning high $1,783.22 before falling to a low $1,755.30.
Ethereum left the major support and resistance levels untested early on.
For the day ahead
Ethereum would need to avoid a fall through the pivot level at $1,742 to support a run at the first major resistance level at $1,976.
Support from the broader market would be needed, however, for Ethereum to break back through to $1,900 levels.
Barring an extended crypto rally, the first major resistance level and Monday’s high $1,938.95 would likely cap any upside.
In the event of an extended crypto rally, Ethereum could test the second major resistance level at $2,173.
Failure to avoid a fall through the $1,742 pivot would bring the 23.6% FIB of $1,579 and the first major support level at $1,545 into play.
Barring another extended sell-off, however, Ethereum should steer clear of the second major support level at $1,311.
Looking at the Technical Indicators
First Major Support Level: $1,545
Pivot Level: $1,742
First Major Resistance Level: $1,976
23.6% FIB Retracement Level: $1,528
38.2% FIB Retracement Level: $1,251
62% FIB Retracement Level: $804
Litecoin
Litecoin slid by 8.50% on Monday. Reversing a 0.22% gain from Sunday, Litecoin ended the day at $208.23.
It was a bearish start to the day. Litecoin slid from an early morning intraday high $227.72 to an early afternoon intraday low $179.02.
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The sell-off saw Litecoin fall through the day’s major support levels and the 23.6% FIB of $195.
Finding late support, however, Litecoin broke back through the third major support level at $199.85.
More significantly, Litecoin also broke back through the 23.6% FIB of $195 to wrap up the day at $208 levels.
At the time of writing, Litecoin was down by 1.92% to $204.24. A mixed start to the day saw Litecoin rise to an early morning high $208.94 before falling to a low $204.12.
Litecoin left the major support and resistance levels untested early on.
For the day ahead
Litecoin would need to move back through the $204.99 pivot level to support a run at the first major resistance level at $230.96.
Support from the broader market would be needed, however, for Litecoin to break back through to $220 levels.
Barring an extended crypto rally, the first major resistance level and Monday’s high $227.72 would likely cap any upside.
In the event of an extended breakout, Litecoin could test resistance at $240 before any pullback. The second major resistance level sits at $253.69.
Failure to move back through the $204.99 pivot level would bring the 23.6% FIB of $195 and the first major support level at $182.26 into play.
Barring another extended sell-off, Litecoin should steer well clear of the second major support level at $156.26. The 38.2% FIB of $163 should limit the downside in the event of a sell-off.
Looking at the Technical Indicators
First Major Support Level: $182.26
Pivot Level: $204.99
First Major Resistance Level: $230.96
23.6% FIB Retracement Level: $191
38.2% FIB Retracement Level: $159
62% FIB Retracement Level: $108
Ripple’s XRP
Ripple’s XRP rose by 3.87% on Monday. Following on from a 6.47% rally from Sunday, Ripple’s XRP ended the day at $0.56619.
A mixed start to the day saw jump to a mid-morning intraday high $0.64919.
Ripple’s XRP broke through the day’s major resistance levels before hitting reverse.
Going into the 2nd half of the day, Ripple’s XRP slid to an early afternoon intraday low $0.47000.
Ripple’s XRP fell through the first major support level at $0.5132 and the second major support level at $0.4813.
More significantly, Ripple’s XRP fell back through the 23.6% FIB of $0.5320 before revisiting $0.63 levels late in the day.
Ripple’s XRP broke back through the first major resistance level at $0.5677 and the second major resistance level at $0.5903.
A bearish end to the day, however, saw Ripple’s XRP fall back through the major resistance levels to end the day at $0.566 levels.
At the time of writing, Ripple’s XRP was down by 1.53% to 0.55755. A mixed start to the day saw Ripple’s XRP rise to an early morning high $0.56869 before falling to a low $0.55602.
Ripple’s XRP left the major support and resistance levels untested early on.
For the day ahead
Ripple’s XRP will need to move back through the $0.5618 pivot level to bring the first major resistance level at $0.6536 into play.
Support from the broader market would be needed, however, for Ripple’s XRP to break out from Monday’s high $0.64919.
Barring an extended crypto rally, the first major resistance level would likely cap any upside.
In the event of an extended rally, Ripple’s XRP could test resistance at $0.70 before any pullback. The second major resistance level sits at $0.7410.
Failure to move back through the $0.5618 pivot would bring the 23.6% FIB of $0.5320 and the first major support level at $0.4744 into play.
Barring another extended sell-off, however, Ripple’s XRP should steer well clear of the second major support level at $0.3826. The 38.2% FIB of $0.4632 should limit the downside.
Looking at the Technical Indicators
First Major Support Level: $0.4744
Pivot Level: $0.5618
First Major Resistance Level: $0.6536
23.6% FIB Retracement Level: $0.5320
38.2% FIB Retracement Level: $0.4632
62% FIB Retracement Level: $0.3521
Please let us know what you think in the comments below.
Thanks, Bob
This article was originally posted on FX Empire
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