On-Chain Analysis

What is On-Chain Analysis?

On-chain analysis refers to the examination of publicly available blockchain transaction and events data to make informed cryptocurrency market decisions.

Key Takeaways

On-chain analysis refers to the study of publicly available blockchain transaction and events data.
On-chain analysis is unique to the cryptocurrency market.
Studying on-chain data will help you track blockchain adoption trends, identify market opportunities, and investigate hacks.
Blockchain explorers and analytics platforms like Etherscan and BTCscan extract the raw data and convert it into readable forms.
Glassnode, Nansen, DefiLlama, L2Beat, and Bubblemaps are popular on-chain analytics platforms.

Table of Contents Table of Contents

What is On-Chain Analysis?
Key Takeaways
On-Chain Analysis Explained
How On-Chain Analysis Works
Key Metrics of On-Chain Analysis
On-Chain Analysis vs. Technical Analysis & Fundamental Analysis
On-Chain Analysis Tools
On-Chain Analysis Pros and Cons
The Bottom Line
FAQs
References

Table of Contents

What is On-Chain Analysis?
Key Takeaways
On-Chain Analysis Explained

Show Full Guide

How On-Chain Analysis Works
Key Metrics of On-Chain Analysis
On-Chain Analysis vs. Technical Analysis & Fundamental Analysis
On-Chain Analysis Tools
On-Chain Analysis Pros and Cons
The Bottom Line
FAQs
References

On-Chain Analysis Explained

A blockchain is a public ledger that records transaction details, wallet addresses, and other events. When it comes to public blockchains like Bitcoin (BTC) and Ethereum (ETH), the data they record is available for everyone to see in real time. This data transparency is a unique benefit that crypto investors can take advantage of.

On-chain data is available on blockchain explorers such as BTCScan and Etherscan.

Types of On-Chain Data

On-Chain Data Types

Here are the different types of on-chain data that you will find on block explorer websites:

Transaction data

Tells you everything from the sender and receiver address, time of transactions, type of token transferred, amount of token transferred, amount of gas fees paid, and smart contract transactions.

Wallet data

Contains information on the value of holdings, types of cryptocurrencies held, and transaction activities.

Block data

Contains information about the status of transactions, block rewards paid to the miner or validator, transactions part of the block, and more.

Smart contracts

Can give you information on decentralized applications (dApps), token mints, staking, and more.

How On-Chain Analysis Works

Raw blockchain data is difficult to decipher for most people. Therefore, blockchain explorers and analytics platforms like Etherscan and BTCscan extract the raw data and convert it into readable forms.

On-chain crypto analysis platforms like Bubblemaps, Glassnode, Nansen, and DefiLlama go one step further by simplifying blockchain data for the end consumer through visual interfaces, charts, portfolio reports, and labels.

You can monitor on-chain activity, whale activity, hacks, hash rates, token supply dynamics, total value locked (TVL), long-term holder statistics, adoption trends, and more.

Key Metrics of On-Chain Analysis

Next up, let’s look at important on-chain indicators for market action:

Total value locked

TVL indicates the total capital locked in smart contracts of decentralized finance (DeFi) and decentralized applications on a blockchain network. Higher TVLs indicate higher adoption rates.

Whale monitoring

Whales are crypto investors who hold significant influence over the market. Tracking whale activity can help investors identify emerging market trends.

Token unlocks

Numerous cryptocurrencies have vesting periods for early investors, founders, and team members. When their tokens are unlocked, it can create a bearish effect on the affected crypto’s prices due to increased circulating supply.

Transaction volume

Transaction volume is a key indicator of blockchain adoption.

Active addresses

A higher number of active addresses can indicate blockchain networks that showcase higher adoption rates.

DEX volumes

Monitoring trading volumes on decentralized exchanges (DEX) can help investors identify the blockchain networks that are growing at a faster rate than their competitors.

Hash rate

A hash rate, representing the total computational power of a blockchain, is a key market indicator for proof-of-work (PoW) networks like Bitcoin.

Long-term holder statistics

According to Glassnode, long-term holders are investors who hold their tokens for over 155 days. A higher percentage of long-term holders are bullish on cryptocurrencies.

Realized market capitalization

Realized market cap is the valuation of a cryptocurrency based on the market value of the tokens at the time they last moved on the blockchain.

Market value to realized value ratio (MVRV)

MVRV is the ratio of a token’s market capitalization to its realized market cap. This ratio indicates the price-to-cost ratio and is used to identify market tops and bottoms.

Market cap-to-fully diluted valuation (FDV) ratio

This ratio compares a cryptocurrency’s market cap based on its current circulating supply to its market cap if all tokens were in circulation. Lower values of this ratio can indicate higher future inflation rates.

On-Chain Analysis vs. Technical Analysis & Fundamental Analysis

On-chain analysis is unique to the cryptocurrency market. However, investors can also use traditional valuation techniques, such as technical analysis and fundamental analysis, when making investing decisions.

Technical analysis refers to the study of historical market data to identify market trends, predict price movements, and discover trading opportunities.

Crypto investors can add technical analysis indicators such as moving averages, relative strength index (RSI), moving average convergence divergence (MACD), and volume-weighted average price to their trading arsenal.

Fundamental analysis refers to the study of a company’s financial health by examining quarterly and yearly financial statements. Fundamental analysts also study broader economic conditions.

Although you can use all aspects of fundamental analysis in crypto investing, investors can examine the revenue and profit generated by blockchain networks and decentralized applications.

On-Chain Analysis Tools

Here are some on-chain analytics platforms and tools that you can use in your crypto-investing journey:

GlassnodeNansenBubblemapsDefliLlamaL2Beat

Glassnode is a market intelligence platform that provides in-depth on-chain data with a particular focus on Bitcoin. It offers a wide range of metrics and charts, including information on realized market capitalization, long-term holders, short-term holders, mining statistics, and more.

Nansen is an on-chain analytics tool that allows users to track influential crypto whales and institutions through their “Smart Money” dashboard.

Bubblemaps is a token supply auditing platform that allows users to visualize complex on-chain data. Crypto wallets are represented as bubbles on the platform. Bubblemaps also shows Interconnected bubbles that represent wallet addresses with connections.

DefiLlama is a platform that provides data on fees, revenue, trade volume, TVL, and stablecoin activity across various decentralized applications and blockchains.

L2Beat is a crypto analytics platform that specializes in monitoring layer two (L2) blockchains.

On-Chain Analysis Pros and Cons

Pros

Provides crypto investors with market insights from real-time blockchain data
Allows users to track whale, venture capital, and institutional investor activity
Gives crypto investors exclusive insight into blockchain adoption trends
Allows investigators to study hacks and scams
Reveals discrepancies in proof-of-reserve (PoR) balances of crypto exchanges and custody firms
Helps traders to identify market opportunities

Cons

Can be difficult to use for beginners
Requires users to understand technical details and blockchain differences to use on-chain data effectively
Demands paid subscriptions for access to on-chain analytics platforms like Glassnode and Nansen
Limits crypto investors’ first-to-market edge, as on-chain data is publicly available

The Bottom Line

It is important for crypto investors to learn how to use on-chain analysis platforms and tools, only then will they be able to take advantage of the transparent property of public blockchain networks.

Combining technical analysis, fundamental analysis, and on-chain analysis can be the key to becoming a successful crypto investor.