Learn what on-chain analysis is with Blogtienao and how you can implement it to improve your crypto trading and investing.
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What is on-chain data?
On-chain data is the amount of data that represents all interactions with the blockchain stored on the network. On-chain data includes information regarding all transactions that occur on a public blockchain network.
Eg: Transaction details like sending and receiving address, transferred token, transaction amount, transaction fee… It also contains block data like time, mining fee, reward and smart contract code… By great mechanism The beauty of blockchain, this data cannot be tampered with, cannot be changed.
On-chain analysis is a research strategy that uses information found on the public blockchain. Thereby forecasting the future of prices, supporting investors’ trading strategies.
Why do we need on-chain data analysis?
Every market has different analysis methods. The most popular can be mentioned as:
But the above methods proved ineffective when the market maker can manipulate the chart, the news can be bought. But with on-chain data, it is public, transparent, and cannot be faked. On-chain data will provide us with the most accurate information.
Similar to how fundamental analysis of stocks aims to understand the true value of a company. On-chain analytics can also value the dApp itself or the blockchain itself.
On-chain analysis can be combined with technical analysis to identify suitable short-term entry and exit points.
Eg: Combined analysis for BTC. With on-chain analysis, one can check the amount of bitcoin pushed to the exchange, miner activity, whales’ activity, etc. Through that, one can make a decision to join or stay out of the market.
Some ways to use data on-chain
On-chain analysis forms a more comprehensive picture of the crypto market based on specific data. We can parse various on-chain data and chain them together.
Here are some basic ways to use data on-chain.
Transaction volume hoặc Total Value Locked (TVL)
Through transaction volume or the amount of key assets in the network, it is possible to better predict future coin movements. For example, by taking into account the number of active addresses and the number of transactions of a cryptocurrency, it is possible to predict whether interest in that cryptocurrency will increase or decrease. If the number of active addresses and transactions increases sharply, that usually correlates with a rising cryptocurrency price, or vice versa. Similarly, TVL increases, the money flowing into that coin is likely to increase in price.
Wallet information of Dev, Investors and Miners team
Usually with current projects, the wallet of the project development team will be public. Tracking these wallets will help us know if the development team and investors are collecting and discharging tokens? Thereby evaluating whether to invest or not? If so, should it be a long or short-term investment?
With foundation projects like BTC, ETH… To maintain the network need miners. The mentality of these miners is also important. Their buying and selling behavior also significantly affects the market.
Analyzing the HOLD time of a certain token tells us whether investors are holding the asset for the long term or selling it quickly. It determines the mood of the market and the position of the holder.
If the number of crypto HOLD investors increases, it could mean a lower circulating supply of the cryptocurrency. This analysis tells us that the price of that cryptocurrency will increase if demand is constant. Moreover, it also shows confidence in that project in the future.
Or with on-chain analysis with concentration data of “whales” and major investors in the network. For example, let’s say there is an asset where several addresses hold a significant percentage of tokens. This means that whales and large-scale investors can easily manipulate the market. With that large amount of tokens they can sell or push to devalue the token. Therefore, it is also important to analyze the concentration of major token holders.
Whale behavior tracking
As you know, good people are not necessarily rich, but rich people are definitely good. With on-chain data we can track wallets that hold large amounts of assets. Refer to information such as: holding which coin? What price to buy and sell?
Watch now: Who is a Bitcoin Whale? How do whales manipulate the market?
The amount of tokens pushed to the exchanges
With this on-chain data, when a token is continuously pushed to centralized exchanges like Binance, Coinbase, etc., it is very likely that we will witness a correction or worse, a sell-off. From there make trading decisions for yourself.
Applying on-chain data to real-world analytics
Let’s try to apply the above knowledge to analyze some coins on the market. You’ve heard a lot about wed 3.0, maybe the trend of 2022, let’s analyze some of the coins leading the top trends.
At the top of the web 3.0 project – King of Oracle, Chainlink is probably a top coin not to be missed in 2022. Those who do not know what Chainlink is can learn here. Chainlink has experienced a great year of 2021.
The network-wide value that Chainlink provides data is worth more than $75 billion, a huge number. Along with that, the founder of Chainlink – Sergey Nazarov also hinted that this 2022 will launch the Staking function that the whole LINK holders community is looking forward to. Leaving aside the basics, let’s take a look at some of Chainlink’s onchain data provided by IntotheBlock.
This on-chain data shows that currently 57.59% of all wallets are in profit, 30.65% at a loss and around 11.76% are in a tie. This data also shows us that the number of wallet addresses buying into the 15-20$ price range is the largest.
The price correlation and profit and loss chart shows us more clearly in this chart. Every time the number of profitable wallets is overwhelming, we will witness a sharp correction. Profit taking pressure will cause the price to go down.
The holding period chart provides us with a continuously increasing number of long-term holding wallets. This demonstrates investors’ confidence in Chainlink.
Beginning of DEFI trend – On twitter, people still compare YFI as the ancestor of DEFI. In just over a year, the protocol has already acquired nearly 6 billion TVLs. With the tokennomic change and Andre Cronje started developing ve(3;3). YFI is also one of the top coins for the DEFI 2022 trend. Let’s see some on-chain data of YFI:
The number of wallets with new profits is only 22.46%, the rest are mostly tied at 55.77%. The percentage of wallets that are losing money accounts for 21.78%. Most investors are considering the price range from 30k-36k as a reasonable price to hold YFI.
The trading volume also shows it when the large amount of trading volume is at this level.
Appeared for more than a year, but the number of hodl wallets more than a year grew continuously. YFI is a 100% community distributed token. It shows that the initial investors have great faith in the project. Although it has made a lot of profit, it has not sold yet.
An overview of on-chain data shows that the price of $30-36 is very attractive to investors. Investors are also very bullish on YFI as the number of long-term unsold wallets increases markedly.
Note when using data on-chain
- On-chain analysis is often preferred by long-term investors, suitable for forecasting for the distant future.
- On-chain analysis is very popular lately. But to analyze it, you need to prepare a certain amount of knowledge and have a multi-dimensional view. Otherwise, you are very susceptible to information interference leading to wrong decisions.
- Real-time behavior, blockchains operate 24/7 around the world. So the data, too, changes constantly, so it needs to be updated regularly.
On-chain data feed
- Right on the platform’s explorer browser. For example ETH is etherscan, BSC is bscscan, etc.
- CryptoQuant: on-chain data of Bitcoin (BTC), Ethereum (ETH), stablecoins and some major altcoins like AAVE, UNI, etc.
- Glassnode: Basically, Glassnode also has the same on-chain metrics as CryptoQuant. However, this platform also has certain differences.
- Whalebot Alert: a telegram channel that warns of strong on-chain fluctuations.
- There are also some other sites like SharkScan, Bitinfochart, IntoTheBlock….
On-chain data is gradually becoming an indispensable tool for Crypto investors. Hope this article has given you an overview of on-chain data. Those of you who are not familiar can read and refer to Blogtienao’s articles on on-chain. This article is for informational purposes only and should not be considered investment advice.
From BTA with love ❤️