What is On-chain Analysis?

On-chain analysis is the examination of blockchain data to understand transaction patterns, asset movements, and network health, aiding stakeholders in making better-informed decisions within the cryptocurrency space. On-chain data refers to transactions that have been verified and are recorded on a blockchain. Verification and recording are done by miners, in the case of Proof-of-Work (PoW) blockchains and stakers, in the case of Proof-of-Stake (PoS) blockchains.

Anyone from anywhere can access on-chain transactions recorded on public blockchains. On the other hand, off-chain transactions are confirmed outside of the main blockchain network, often resulting in a cheaper and faster process for the user.

Technical Analysis vs. On-Chain Analysis vs. Fundamental Analysis

Fundamental analysis, technical analysis, and on-chain analysis are three popular methods used to analyze cryptocurrencies. Fundamental analysis takes a deep dive into all the information available about a cryptocurrency, including quantitative financial metrics and qualitative measures, to determine a cryptocurrency’s intrinsic price.

Technical analysis relies on the use of charts and technical indicators to analyze past price movements and identify potential future trends. On-chain analysis uses blockchain data to predict trends and gauge market sentiment by monitoring how funds move on the blockchain to detect potential investment opportunities.

How to Analyze On-Chain Data?

On-chain data can provide insights into transaction patterns, network health, tokenomics, and the overall behavior and trends within decentralized ecosystems, enabling users to make informed decisions and optimize their blockchain interactions. Here are some of the most important on-chain metrics to consider when analyzing on-chain data:

Active Addresses

Active addresses refer to the number of unique addresses that have sent or received a transaction on a blockchain over a given period of time. This metric can help you understand the level of adoption and usage of a particular cryptocurrency.

Transaction Volume

Transaction volume refers to the total value of all transactions on a blockchain over a given period of time. This metric can help you understand the demand for a particular cryptocurrency.

Supply Distribution

Supply distribution refers to the distribution of a cryptocurrency’s supply across different addresses. This metric can help you understand the level of centralization or decentralization of a particular cryptocurrency.

Total Value Locked

Total value locked refers to the total value of assets that are locked in smart contracts on a blockchain. This metric can help you understand the level of adoption and usage of decentralized applications (dApps) built on a particular blockchain.

Token Holders

Token holder counts are an important on-chain metric to consider when performing on-chain analysis. Token holder counts refer to the number of unique addresses that hold a particular cryptocurrency. This metric can help you understand the level of adoption and usage of a particular cryptocurrency.

By analyzing token holder counts over time, traders can identify trends in the level of adoption and usage of a particular cryptocurrency. Additionally, token holder counts can help traders identify undervalued projects that have strong potential but are not yet widely adopted.

By investing in these projects early, traders can potentially reap significant returns as the project gains popularity and adoption. However, it’s important to note that token holder counts are just one factor to consider when analyzing a cryptocurrency project. Traders should also consider other factors such as the project’s use cases, the number of people using it, and the team behind the project.

Revenue

Revenue is an important on-chain metric to consider when performing on-chain analysis. Revenue refers to the total amount of money earned by a cryptocurrency project over a given period of time. This metric can help you understand the level of adoption and usage of a particular cryptocurrency. By analyzing revenue over time, traders can identify trends in the level of adoption and usage of a particular cryptocurrency.

Additionally, revenue can help traders identify undervalued projects that have strong potential but are not yet widely adopted. By investing in these projects early, traders can potentially reap significant returns as the project gains popularity and adoption. However, it’s important to note that revenue is just one factor to consider when analyzing a cryptocurrency project. Traders should also consider other factors such as the project’s use cases, the number of people using it, and the team behind the project.

On-Chain Indicators for Market Action

On-chain indicators can help traders and investors predict market trends and gauge market sentiment. Here are some of the most important on-chain indicators for market action:

• Realized Profits and Losses: Realized profits and losses (RPL) is an on-chain metric for floating gains/losses realized after selling an asset. Once you purchase a digital currency, you will incur a profit/loss caused by the price movements. You can use RPL to understand the profit/loss of all coins that have moved on-chain.
• Supply in Profits or Loss: Supply in profits or loss (SIPL) is an on-chain metric that measures the amount of coins that are currently in profit or loss. This metric can help you understand the level of market sentiment and the potential for price movements.
• Realized Capitalization: Realized capitalization is an on-chain metric that values each unit of a cryptocurrency based on the price at which it was last moved on-chain. This metric can help you understand the level of market sentiment and the potential for price movements.

Top 4 Tools for Visualizing On-Chain Data

Here are some of the most popular tools for visualizing on-chain data:

Glassnode

Glassnode is a leading provider of on-chain and market data analytics for institutions and professional cryptocurrency investors. The platform offers highly granular metrics for on-chain Bitcoin data, such as the movements of bitcoin whales, open interest in the futures trading market, mining difficulty, and realized market capitalization.

Glassnode provides access to diverse on-chain and off-chain data, including proprietary metrics available through multiple delivery mechanisms. Its comprehensive solutions are designed to meet the challenges of an evolving crypto landscape. Glassnode’s platform allows users to create and share custom dashboards for on-chain data analysis.

It supports multiple blockchains, including Ethereum, Polygon, and Binance Smart Chain. By leveraging Glassnode’s on-chain data analytics, traders can gain a better understanding of transaction patterns, asset movements, and network health, enabling them to make better-informed decisions within the cryptocurrency space.

CryptoQuant

CryptoQuant is a leading provider of on-chain and market data analytics for institutions and professional cryptocurrency investors. The platform offers highly granular metrics for on-chain Bitcoin data, such as the movements of bitcoin whales, open interest in the futures trading market, mining difficulty, and realized market capitalization.

CryptoQuant provides access to diverse on-chain and off-chain data, including proprietary metrics available through multiple delivery mechanisms. Its comprehensive solutions are designed to meet the challenges of an evolving crypto landscape. CryptoQuant’s platform allows users to create and share custom dashboards for on-chain data analysis.

It supports multiple blockchains, including Ethereum, Polygon, and Binance Smart Chain. By leveraging CryptoQuant’s on-chain data analytics, traders can gain a better understanding of transaction patterns, asset movements, and network health, enabling them to make better-informed decisions within the cryptocurrency space.

Dune Analytics

Dune Analytics is a platform that allows users to create and share custom dashboards for on-chain data analysis. It supports multiple blockchains, including Ethereum, Polygon, and Binance Smart Chain.

Nansen

Nansen is a platform that provides insights into Ethereum-based on-chain data. It offers features such as address tracking, token analysis, and market insights.

In conclusion, on-chain analysis is the examination of blockchain data to understand transaction patterns, asset movements, and network health, aiding stakeholders in making better-informed decisions within the cryptocurrency space. On-chain data can provide insights into transaction patterns, network health, tokenomics, and the overall behavior and trends within decentralized ecosystems, enabling users to make informed decisions.