The cryptocurrency market is very dynamic and volatile. This makes it difficult for new investors to be competitive and therefore successful. However, there are some important on-chain indicators that will be frequented by tech-savvy Bitcoin investors in 2024. Using these tools allows for an understanding of the trend and an appreciation of the long-term perspective.
While some of these indicators are easy to grasp, some require time to understand and apply accordingly. It is worth mentioning that on-chain indicators make use of blockchain data, in contrast to technical indicators that are mainly applied to price charts.
Several platforms offer on-chain data and indicators to investors. Some come free while others may require a subscription. Depending on the level of understanding, and the need at hand, investors are free to settle for any of the trusted platforms including Santiment, Glassnode, Crypto Quant, Coinglass, Defi Llama, and more.
This article will delve into some of the most sought-after on-chain indicators by tech-savvy investors ahead of a potential bull run in 2024.
MVRV Ratio – Track collective Bitcoin investor behavior
The MVRV ratio, also known as the market value to realized value, is used to track aggregate investor behavior to or from the cost baseline. According to Sentiment, it “studies the relationship between the current price and the average price of each coin/token acquired.”
As the ratio swells, it means investors will be willing to unload and take profits. In simpler terms, it indicates whether an asset is undervalued or overvalued.
Some investors also refer to it as a mean reversion style model since the Realized Cap (weighted market cost baseline) is used as the average, while the MVRV follows the deviation from the same average.
The rate can be positive or negative with 100% or 2.0 average at x2 or 100% profit for investors who sell the token. Traders will earn more at higher ratios.
On the other side of the fence, when the MVRV is negative, it implies an undervalued digital asset. Investors sold the token which drove the price down. It also indicates the time to buy at the current price.
2. Realized profit and loss
The realized profit and loss on chain indicator is another reliable tool used by traders and analysts. Glassnode Studio, dives into the concept of price tagging. Each token or coin is linked to a price and time it was sent on the blockchain.
Using the above data, two key parameters come to life: The “Coins Spent Above Acquisition Value Realized a Profit” and the “Coins Spent Below Acquisition Value Realized a Loss.”
Traders can then limit the capital inflows and outflows of an asset like Bitcoin, allowing for both short-term and long-term prospects as well as market sentiment.
Note that a net realized profit/loss is mainly calculated by misappropriating realized loss from realized profit. The realized P/E will then refer to the ratio between realized profit and realized loss.
A few elements emerge from this indicator, such as an overview of the macro trend of an asset, close to accurate shifts in market sentiment, and the actual dominant factor of capital inflows and outflows from the crypto network.
Spent Output Profit Ratio (SOPR)
Most ardent investors consider this on-chain indicator a game changer. The Spend Output Profit Ratio tracks the magnitude of the realized profit and loss for all coins moving on the blockchain. This is achieved by calculating the spent outputs, the realized value (in USD) and dividing by the value of the coins at creation (in USD) of the output. In simple terms, the SOPR is calculated by finding the ratio of price sold to price paid.
Interpretation: A SOPR value of more than 1 indicates that coins moved on the chain on that particular day are profitable. Or rather, price sold is higher than price paid.
On the other hand, a value less than 1 means that the coins that moved on the chain on that day are lost. Or rather, price sold is lower than price paid.
As for the SOPR value of 1, find that coins that moved on the chain on that particular day did so at the breakeven point, or average.
A consistent rise in the SOPR creates a peak and is often seen during a bull market indicating a local or macro top. In this case, investors can buy when the SOPR is consistently trending downward and sell for profit if the indicator moves to a high.
Bottom line
It is far from impossible to depend solely on price action to make informed decisions in the crypto market. Selected on-chain indicators should be consolidated to get a wider range of sentiment in the market—when to buy, hold, or sell.
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Disclaimer for Uncirculars, with a Touch of Personality:
While we love diving into the exciting world of crypto here at Uncirculars, remember that this post, and all our content, is purely for your information and exploration. Think of it as your crypto compass, pointing you in the right direction to do your own research and make informed decisions.
No legal, tax, investment, or financial advice should be inferred from these pixels. We’re not fortune tellers or stockbrokers, just passionate crypto enthusiasts sharing our knowledge.
And just like that rollercoaster ride in your favorite DeFi protocol, past performance isn’t a guarantee of future thrills. The value of crypto assets can be as unpredictable as a moon landing, so buckle up and do your due diligence before taking the plunge.
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