On-chain analysis refers to the analysis of the data recorded on the blockchain itself. There are several tools out there that allow you to analyze the data stored on the blockchain. These include BlockCAT, Chainalysis and Coinmetrics.
Why is chain analysis important?
Data from on-chain analytics allows us to see exactly who owns what (number/value of coins) at any given time. This information is stored in blocks, or records of transactions which are then linked together in chains.
Unlike technical analysis, on-chain analysis is a fundamentally driven approach to financial analysis. It is entirely focused on a single crypto asset by looking at the crypto’s fundamentals, utility, transaction activity and historical trends that can predict the crypto market direction.
With cryptocurrencies, trade data and investment activity can be extracted from the blockchain network and analyzed to derive actionable crypto markets in a process called on-chain analysis. By accessing enormous amounts of financial data dating back years, data analysts and scientists can analyze the data to generate market sentiments that can aid in trading decisions. Additionally, the extracted financial data can be used to create machine learning models that can accurately predict future market directions.
In addition to fundamental and technical analysis, on-chain analysis is becoming increasingly important for any avid crypto trader.
On-chain data platforms and analytics tools enable anyone to acquire on-chain data sets and analyze them to generate actionable market signals. While anyone can access the public ledger of a particular cryptocurrency and look at certain metrics such as transaction records, analyzing this data is quite challenging. Not everyone can collect, structure and analyze the captured on-chain data. Blockchain explorers like EtherScan for the Ethereum network, for example, only allow you to view gas fees and wallet addresses, track tokens, view Txns, and look up smart contracts. It does not combine data or provide analysis tools to make sense of the enormous data sets.
Several third-party on-chain data platforms and analytics tools have been introduced to address Blockchain explorers’ shortcomings. These platforms feature informative charts and dashboards to enable users to visualize various on-chain data and derive critical information. Below are some popular on-chain data platforms.
Glassnode Based in Switzerland, Glassnode is an intuitive platform that provides on-chain statistics, with an extensive set of data points even for the free plan. The platform is user-friendly, with an impressive user interface. The paid version of the platform offers advanced statistics, in-depth reports on chain insights regularly and dynamic time series data. Whaleportal – Whaleportal is a cryptocurrency dashboard that provides traders with derivative exchange data such as funding rates and open interest. Cryptocurrency traders analyze these metrics to predict price direction and volatility. IntoTheBlock – This platform offers a wide range of analytical tools that can be used for on-chain analysis, sentiment analysis and order book data for supported cryptocurrencies. Coin Metrics – Founded in 2017, Coin Metrics provides investors with in-depth on-chain metric analysis for all major cryptocurrencies. You have access to network data on this platform, including transaction backgrounds, market data covering more than 20 global exchanges, indices and third-party data, including the Twitter sentiment feed. CryptoQuant – Based in Seoul, South Korea, CryptoQuant is an on-chain data provider that focuses on Ethereum, Bitcoin and other stablecoins. Apart from on-chain data, this platform offers exchange data, miner data and network data which can still be analyzed to determine market direction
Important On-Chain Analysis Metrics
Thousands of statistics can be obtained from the on-chain analysis to enable you to improve the outcome of trading decisions. Below are some on-chain analytics statistics worth looking out for:
Metrics to measure network strength
Various on-chain analysis statistics can be used to give crypto traders and investors a bird’s eye view of the cryptocurrency’s network. With these metrics, you can know, among other things, how secure a blockchain network is, monetary policies that exist on the specific network, network growth and how much it is used.
Examples of on-chain metrics that can be used to determine a crypto network’s strength include:
Transaction Volume Active Addresses Daily Issuance Inventory Distribution Miner Income Hash Rate
Metrics to monitor buying and selling
The above metrics tend to describe the network’s long-term health and are best when formulating a long-term trading decision. For short- to medium-term trading decisions, on-chain analysis statistics to monitor buying and selling are best used. These metrics can indicate whether traders of specific crypto are making profit or loss and how many coins are held by miners, exchanges and individuals. For example, if long-term traders are moving a large number of coins to exchanges after a significant rise in the market, these metrics will tell you that a significant sell-off is imminent. Some of the metrics to monitor buying and selling and to provide short- to medium-term market action include:
Realized Profits and Losses Cointime Destroy Provision in Profits and Losses Thermal Capitalization Realized Capitalization HODL Waves
Metrics to evaluate a coin’s price
As a cryptocurrency trader, it is important to always know the best time to buy or sell digital assets. And to do that, you need to understand the market trends in real time. These on-chain analysis statistics can enable you to understand the short-term market trends to know exactly when to sell or buy a particular coin.
Market Value to Realized Value (MVRV) Network Value to Transaction (NVT) Stock to Flow Ratio Stablecoin Supply Ratio (SSR)
Concluding thoughts
Blockchain technology provides an immutable record of transactions. It also allows for transparency and traceability of data. Fortunately, on-chain analysis is among the blockchain data that is accessible to everyone. Although it is often ignored, only the smart traders and investors understand how critical the chain information is when formulating cryptocurrency trading strategies. Be sure to look at all angles before boldly investing in any crypto!
Is it profitable to trade cryptocurrency?
Yes! If you want to invest in cryptocurrency, you must first decide which one. I suggest you choose Bitcoin, Ethereum, Ripple, Litecoin, Dash, Monero, NEM, Neo, EOS, ZCash, Stellar Lumens, Ontologie, Qtum, Waves, Siacoin and Icon. Once you have selected a coin/token, then start buying it. When prices rise, it sells at a higher price. This is how you make money by investing in cryptocurrencies.
Can on-chain crypto analysis make me a pro trader?
Yes, it can. You should study the trends and data provided by the blockchain. And after reading all the available information, you should be able to predict future trends.
What do I need to trade crypto?
To start trading cryptocurrencies, you will want to have knowledge about blockchain technology and what cryptocurrencies are. There are several different types of cryptocurrency, such as Bitcoin, Litecoin, Ethereum, Ripple and Monero, and each has advantages and disadvantages for traders. The best exchange rates come from exchanges that offer fiat currency trades and crypto-to-crypto trades.
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.
Ultimately, any crypto adventure you embark on is yours alone. We’re just happy to be your crypto companion, cheering you on from the sidelines (and maybe sharing some snacks along the way). So research, explore, and remember, with a little knowledge and a lot of curiosity, you can navigate the crypto cosmos like a pro!
UnCirculars – Cutting through the noise, delivering unbiased crypto news
