What is Onchain Analytics, and why is it useful for crypto traders?

A new paradigm in investment

Public blockchains like Ethereum, Solana and Bitcoin are transparent digital ledgers, auditable by anyone and everyone. Every transaction and event on these chains is visible and publicly accessible, allowing anyone, anywhere, anytime to access and analyze them. This transparency ushers in a new paradigm in trade and investment. This enables real-time monitoring of trades and transactions, providing a deep understanding of market activity. As a result, merchants who effectively use onchain analytics can make more informed decisions and identify opportunities early.

What is Onchain Analytics?

Onchain analytics, or blockchain analytics, involves examining blockchain data such as transactions, transactions, and wallet address holdings to understand the actions of market participants on respective blockchains in real time. For investors or traders, you can gain insight into who holds or trades specific cryptocurrencies, how sophisticated actors position their portfolios, and how token holders react to market events. This unique insight into market movements, absent in traditional finance, offers investors a new way of research and due diligence.

Often, raw blockchain data is not easily accessible to the common person and requires further contextualization and deciphering to be useful. Onchain analytics platforms like Nansen do all the heavy lifting for you, turning raw data into actionable insights.

For those seeking a more comprehensive understanding of how blockchain analytics works and its usefulness as a trader, two additional guides are available: ‘Blockchain Analytics: The Ultimate Tool for Understanding Crypto’ & ‘What Are the Best Crypto Whales to Buy? How to track and find them’

Key insights traders can gain from Onchain analytics

Now that you have a foundational understanding of onchain analytics, it’s essential to identify key data points for consideration. Although blockchains document every transaction and event, not all of this data is useful to merchants. The ability to focus on important information and disregard the rest is what sets elite traders apart. Let’s dig into the most important onchain data points to guide you on your journey

Holdings and activity of whales and institutions

In traditional markets, traders often wish they could understand the movements of institutions or top traders. In the crypto world, with the right tools, it becomes possible. Although crypto transactions are pseudonymous, platforms like Nansen tag wallet addresses of key entities, funds and influential individuals, illuminating their activities.

Visit Nansen and use CMD + K to search for any entity, ETC or wallet address for analysis. You can switch between individual chains or opt for a multi-chain view with the switch in the upper right corner.

Monitoring the holdings and trading patterns of significant players, such as whales and institutions, enables traders to align their strategies and anticipate market shifts. However, these large entities may not always deliver the highest returns or be the first for new opportunities due to their scale and strategy. Nansen improves this by tagging wallets with behavior, especially Smart Money tags.

Track Smart Money Activity

Smart Money wallets are those that show the highest returns in specific on-chain activities. The top performers in each activity get a Smart Money label relevant to that activity, which includes liquidity provision, DEX trading, NFT trading, airdrop farming, and more.

Nansen offers curated overviews of the entire Smart Money segment, highlighting key movements and activities. This feature reveals the cryptocurrencies that top players hold, accumulate or sell, and also identifies wallets with the highest returns over different time periods.

For more details on tracking whales and Smart Money addresses, check out our latest guide on the subject.

Who buys, sells or holds your tokens

Another approach to onchain analysis is to focus on the movement and holders of specific tokens, rather than individual wallet addresses. Monitoring the shifts in ownership and transactions of top holders can provide insight into their sentiment and outlook on a particular tick. Tracking the buyers and sellers of a token can serve as valuable indicators for your trading decisions.

On Nansen, you have access to an in-depth view of all onchain movements of any token across supported chains. This includes details about the holders, who bought and sold the token, flows to exchange, and Smart Money activity.

For example, if we examine BEAM through Nansen’s Token God mode, we notice that several Smart Money addresses, including CitizenX and DCG, transferred tokens to Binance and MEXC after a price increase from $0.018 to $0.023. These transfers indicate that these entities may be taking a profit on their BEAM holdings. In general, deposits to centralized exchanges indicate potential selling, while withdrawals often indicate buying.

To stay informed of key onchain movements, you can set up Smart Alerts for the largest holders of your chosen token or for large transfers of the token itself. These alerts are delivered to your Telegram or Discord in real time, keeping you informed and allowing you to be early on potential trading opportunities.

Examples of transactions to monitor:

Large transfers to/from centralized exchanges by relevant entities/addresses. Holders increasing/decreasing their holdings Who buys/sells on DEXs

Monitoring Onchain Capital Flow

Tracking onchain capital flows is perhaps the most versatile starting point. Without having specific tokens or addresses in mind, you can find alpha just by analyzing onchain flows and following the money. Although it is difficult to do this on your own, it only takes seconds to use Nansen.

Abnormal increases in onchain activity

Using its database of tags and onchain data coverage, Nansen uses machine learning models to analyze on-chain transactions to surface activity spikes across tokens and NFTs via signal charts. These charts are displayed on your home page or can be viewed in the dedicated Signals feed. You can also filter for specific categories of signals to further hone in on onchain moves you care about.

There are currently 9 categories of signals:

CEX Token FlowSmart Money Token FlowSmart Money NFT Mint PresenceSmart Money NFT MintNFT VolumeNFT Coin VolumeDEX Token FlowFresh Wallets FlowTop Balance Change

Onchain flows over tokens

Another key feature in monitoring onchain flows is Token Paradise. Token Paradise provides a consolidated overview of the performance of tokens across various categories such as price action, onchain flow and key onchain metrics.

Looking at the Token Flow tab of Token Screener, you can get quick overviews of onchain flows across fresh wallets, Smart Money and exchanges over different timeframes. Switching to the Onchain Metrics tab gives you an overview of key onchain metrics such as number of holders and Smart Money ownership.

Compile your own alpha list of wallet addresses

Often you have a unique set of cryptocurrencies you are looking at and are interested in analyzing traders with a similar profile. Most of the methods described above are token specific and do not account for multiple tokens at once. on Nansen identifies wallets with tokens and NFTs that matter to you in seconds.

Often you may have a unique set of cryptocurrencies that you are interested in analyzing, focusing on traders with a similar profile. Most of the methods described previously are token-specific and do not accommodate multiple tokens simultaneously. Nansen’s smart segments quickly identify wallets with tokens and NFTs relevant to your interests.

Simply enter the conditions you are looking for, and Smart Segments will identify Ethereum addresses that meet these criteria and name them accordingly. The list created is dynamic and constantly updated to ensure it remains up to date. To actively monitor these addresses, you can either view their activity together or analyze individual wallets on Nansen for more detailed insights

Useful tools for Onchain analysis?

The tools used by investors depend on the type of onchain activities that interest them. Each tool has their own unique set of features and focus. Here is a list of 3 tools you can try:

Nansen: Nansen provides deep insight into a wide range of onchain activities across all categories. You can analyze wallet addresses, NFTs, tokens, liquidity pools, across a multitude of chains, all on a single platform. With over 300 million wallets tagged, it’s effortless to get a clear picture of what’s really happening on the chain.

Glassnode: While Nansen shines in its coverage of Ethereum and numerous other Layer-1s and Layer-2s, it does not offer coverage of the Bitcoin network. This is where a platform like Glassnode shines. Glassnode has numerous onchain indicators that provide investors with insight into the Bitcoin network.

Dune: For users looking for high-level overviews of the performance of individual protocols, Dune is the place to go. By understanding the activity and growth of various protocols (DEXs, liquid strike, etc.), you can determine their fundamental value, similar to analyzing a company in the stock market.

Limitations of Onchain Analytics?

Not every action in the crypto world takes place onchain. Activities within centralized entities, such as trading on Centralized Exchanges (CEXs), occur off-chain. While it is possible to track the movement of tokens between CEX wallets and transfers to and from these wallets, the rest remains opaque.

Although blockchains are transparent, they offer degrees of anonymity. Identifying the real identities behind wallet addresses is challenging, making understanding the full context of transactions difficult. Assigning wallet addresses to specific entities or individuals comes with a margin of error. Unless addresses are publicly disclosed, tagging accuracy relies on the ability to spot patterns and effectively analyze wallet activity.

Furthermore, accurate analysis depends on the platform’s ability to correctly interpret raw blockchain data. As the variety of onchain activity expands, so does the complexity of accurately decoding this data. Analysis based on poor quality data can lead to wrong conclusions and wrong decisions.

Future of Onchain Analytics?

Onchain analysis becomes more reliable as the data set grows, and in Nansen’s case, the more accurately tagged wallets. In short, the more data available, the more reliable onchain analysis will become. Because of its reliance on datasets, it represents a natural application for machine learning. Heading into the future, as increasingly large datasets become accessible, the skill of onchain analytics will grow in tandem.​​

Combining AI and machine learning with blockchain data is likely to unlock new possibilities. Nansen employed machine learning to help detect anomalies in onchain activity and come up with NFT price estimates.

Closure

Onchain data remains an incredible tool for investors and one that is unique to blockchain and crypto assets. Thanks to the distributed ledger technology these systems are built on, investors get a bird’s-eye view of how liquidity moves. This new era of transparency marks a clear departure from traditional finance, and Nansen provides the toolset to take full advantage of this unprecedented data landscape.