Onchain data analytics: Using Data- Driven in Cryptocurrency market

article structure. tool: whimsical

Introduction

On-chain analysis is like being a detective in the world of cryptocurrencies. It means looking closely at the blockchain, which is where all transactions and activities are recorded. This can help us understand what’s happening in the crypto market. For example, it can show us how many people are buying or selling, how much crypto is being moved around, and how active the crypto community is.

Why is this important? Because it helps people make smarter decisions. Whether you’re investing, trading, or just curious, knowing what’s happening on the blockchain can give you clues about where the market might be going next. It’s like having a map in a treasure hunt.

In this guide, we’re going to walk through everything you need to know about on-chain analysis. We’ll talk about the main things to look for, like how many transactions are happening and how much it costs to make those transactions. We’ll also look at tools you can use to find this information, such as Glassnode and Etherscan, and explain why keeping an eye on certain metrics can help you understand the crypto market better.

By the end of this guide, you’ll have a clearer picture of how to use on-chain analysis to get insights into the crypto world. Whether you’re just starting out or you’re trying to get better at analyzing the market, the information here will be really useful.

Market data

Bitcoin/
├── Status/ // status of Bitcoin entity
├── Exchange-Flows/ // on-chain statistics of exchanges
├── Flow-Indicator/ // mpi, whale ratio and other flow indicators
├── Market-Indicator/ // stablecoin supply ratio and other market indicators
├── Network-Indicator/ // nvt, nvt-golden-cross and other network indicators
├── Miner-Flows/ // on-chain statistics of miners
├── Inter-Entity-Flows/ // on-chain statistics of flows between entities
├── Fund-Data/ // fund related data
├── Market-Data/ // price, capitalization
└── Network-Data/ // general statistics of Bitcoin network

Ethereum/
├── Status/ // status of Ethereum entity
├── Exchange-Flows/ // on-chain statistics of exchanges
├── ETH2.0/ // Ethereum 2.0 statistics
├── Fund-Data/ // fund related data
└── Market-Data/ // price, capitalization, market indicators

Stablecoin/
├── Status/ // status of stablecoin entity
├── Exchange-Flow/ // on-chain statistics of exchanges
├── Market-Data/ // price, capitalization, market indicators
└── Network-Data/ // USDT, PAXOS, USDC, DAI, TUSD, SAI

ERC20/
├── Status/ // status of erc20 entity
├── Exchange-Flow/ // on-chain statistics of exchanges
└── Market-Data/ // price

source: Cryptoquant

Understanding On-Chain Metrics

source — glassnode

Think of on-chain metrics as the vital signs for the cryptocurrency world, like checking the pulse of the market. These metrics tell us how healthy the crypto market is and what might happen next. Here are some of the key signs we look at and why they’re important:

1. Transaction Volume: This is how much cryptocurrency is being moved around. If a lot of crypto is being traded, it’s like a busy marketplace. It means people are very interested in buying and selling.

2. Active Addresses: These are like the number of people in the marketplace. More active addresses mean more people are involved in the crypto world, which can be a good sign that the market is lively.

3. Gas Fees: In some cryptocurrencies, like Ethereum, you pay a fee to make transactions. High fees can mean the network is really busy, kind of like traffic jams during rush hour. But too high fees can also discourage people from making transactions.

4. Hash Rate: This is about the security of the blockchain. A higher hash rate means more computing power is being used to keep the network secure. It’s like having more guards watching over a treasure.

5. Staking Rates: In some cryptocurrencies, you can “stake” your coins to help the network operate smoothly. Higher staking rates can show that people trust the system and are willing to lock up their coins for it.

To find these metrics, there are special websites and tools like Glassnode, CryptoQuant, Etherscan, and Messari. They’re like search engines for on-chain data, where you can look up all these vital signs and more.

Why do we care about all this? Because knowing these metrics can help us make smarter decisions. They can tell us if the crypto market is active and growing, if it’s healthy and secure, or if there might be problems ahead. It’s a bit like weather forecasting but for cryptocurrencies.

Utilizing Blockchain Explorers

bscscan.com

Imagine you have a magic map that lets you see everything happening in the world of cryptocurrencies. That’s what blockchain explorers are like. They are websites that show you all the transactions, active wallets, and lots of other information about different cryptocurrencies. Here’s why they’re super helpful and how to use them:

1. Seeing Transactions: Blockchain explorers let you see every transaction that happens. It’s like being able to track every purchase in a giant online store. You can see how much was spent, where it went, and when it happened.

2. Checking Wallets: They also show you active wallets. A wallet is like a personal account for holding and using cryptocurrencies. By looking at them, you can get an idea of how many people are buying, selling, or just holding onto their crypto.

3. Finding Details: Want to know more about a specific transaction or wallet? Blockchain explorers give you the deep dive, showing everything from transaction fees to the exact time something happened.

Some popular blockchain explorers include Etherscan (for Ethereum), BscScan (for Binance Smart Chain), and Blockchair (which supports many different cryptocurrencies). Here’s how you can navigate these tools:

• Search Bar: Just like a search engine, you can type in a wallet address or a transaction ID to find what you’re looking for.
• Filters: These tools often let you filter by date, amount, and other criteria to help you find specific transactions or activities.
• Understanding the Data: They provide a lot of information, but the key things to look for are transaction volumes, wallet activity, and the fees being paid.

Using blockchain explorers can seem a bit overwhelming at first, but they’re a powerful way to see what’s really happening in the cryptocurrency world. It’s like having a behind-the-scenes look at the blockchain, helping you understand the market better.

Analyzing HODLer Behavior

“HODL” is a term in the crypto world that started as a typo for “hold” but now stands for “Hold On for Dear Life.” It refers to people who hold onto their cryptocurrencies for a long time, no matter how much the market goes up or down. Understanding HODLer behavior is like watching who’s riding the roller coaster without getting off, even when it gets scary. Here’s why their behavior is important and how we can learn from it:

Bitcoin Rich List

1. HODL Waves: This is a way to see how old different parts of the crypto in wallets are. Imagine a beach where each wave represents crypto being held for different lengths of time. Some waves are for crypto held for just a few days, while others are for crypto held for years. By looking at these waves, we can understand how many people are short-term visitors versus long-term residents in the crypto world.
2. Average Spent Output Lifespan (ASOL): This metric tells us how long, on average, people are holding onto their crypto before spending it. It’s like knowing the average time someone keeps a car before selling it. A longer lifespan means more people are in it for the long haul.
3. Realized Cap HODL Waves: This takes the idea of HODL waves and adds how much the crypto is worth. It helps us see not just how long crypto is being held, but also the value of what’s being held over different periods. It’s a bit like watching how the value of all the cars in a parking lot changes over time.

To find this information, you can use platforms like Glassnode and Coinmetrics. They offer detailed charts and data on HODLer behavior, showing us the commitment level of investors.

Why does this matter? Because HODLers can significantly impact the market. If lots of people are holding onto their crypto, it means there’s less available for trading, which can affect prices. Understanding HODLer behavior helps us see the market’s potential direction and investor confidence.

Examining Staking Rates

Staking is like putting your money in a savings account that earns interest, but with cryptocurrencies. In certain cryptocurrencies, you can “stake” your coins by locking them up to help keep the network secure and running smoothly. In return, you earn rewards. Let’s break down why staking rates are important and what they tell us:

top POS — Staking ratio projects. source: stakingrewards

1. Staking Ratio: This shows us how much of the total supply of a cryptocurrency is being staked. It’s like seeing how many people trust the bank enough to keep their money there. A high staking ratio suggests that many people believe in the network’s future and are willing to lock up their coins for it.
2. Staking Rewards: These are the incentives people get for staking their coins. Higher rewards can attract more people to stake, but if the rewards are too high compared to other investments, it might suggest the network is trying too hard to attract stakers, which could be a red flag.
3. Staking Participation Rate: This tells us how many of the people who can stake are actually doing it. It’s like seeing how many eligible voters actually vote. A high participation rate means a strong, active community that’s involved in the network’s health.

You can find staking data on websites like Staking Rewards and network-specific explorers. They give you an overview of how much is being staked, the rewards, and how many people are participating.

Why do we look at staking rates? Because they give us insight into the network’s security and the community’s confidence. Cryptocurrencies that rely on staking need a large and committed group of stakers to stay secure. If the staking rates are high, it suggests a healthy, robust network. Plus, for investors, staking is a way to earn passive income on their holdings, making it an attractive aspect of the crypto world.

Monitoring Exchange Flows

Exchange flows are like watching traffic into and out of a city. In the crypto world, this means tracking how much cryptocurrency is moving in and out of exchanges. Exchanges are places where people buy, sell, or trade cryptocurrencies. Understanding these flows can tell us a lot about market sentiment. Here’s how:

Exchange Flows. source: cryptoquant

1. Exchange Net Flow: This is the difference between how much crypto is entering and leaving exchanges. If more crypto is coming in than going out, it might mean people are getting ready to sell. If the opposite is true, they might be holding onto their crypto, expecting its value to go up.
2. Exchange Inflow/Outflow Volume: This shows the total amount of crypto moving in or out. High inflow volumes can signal that a lot of people are looking to sell, while high outflows suggest many are buying to hold.
3. Exchange Balance: This is how much crypto is stored on exchanges. A dropping balance could mean more people are moving their crypto to private wallets, possibly to hold for the long term.

Tools like CryptoQuant, TokenAnalyst, and Glassnode provide detailed data on exchange flows. They can help you visualize these movements with charts and graphs, making it easier to see the trends.

Why is this important? Because it gives us clues about what might happen next in the market. For example, if lots of Bitcoin is flowing into exchanges, it could mean that people are getting ready to sell, which might lower the price. On the other hand, if Bitcoin is flowing out, it could mean people are holding onto it, which might push the price up.

By keeping an eye on exchange flows, you can get a sense of the market’s mood. Are people feeling bullish, expecting prices to rise, or bearish, fearing they’ll fall? This insight can help you make more informed decisions, whether you’re trading or investing.

Analyzing Stablecoin Ratios

Stablecoins are like the anchors of the crypto world. They’re designed to be stable and are often tied to the value of something outside the crypto market, like the US dollar. This stability makes them a safe haven during market turbulence. But there’s more to stablecoins than just stability. By analyzing stablecoin ratios and volumes, we can gain insights into the broader market sentiment. Here’s how:

source — cryptoquant

1. Stablecoin Supply Ratio: This ratio compares the total supply of stablecoins to the market cap of cryptocurrencies like Bitcoin. A low ratio suggests that stablecoins have a lot of buying power, potentially signaling that traders are ready to buy into other cryptocurrencies. It’s like knowing how much money is on the sidelines, waiting to jump into the game.
2. Stablecoin Transaction Volume: This shows us how much stablecoin is being moved around. A surge in transaction volume could indicate that more people are using stablecoins to trade or to move their funds into safety. It’s a bit like watching the flow of traffic; if more people are moving into stablecoins, it might mean they’re cautious about the market.
3. Stablecoin Dominance: This metric tells us what portion of the total crypto market is made up of stablecoins. An increase in dominance might mean that investors are hedging their bets, preferring the safety of stablecoins over more volatile cryptocurrencies.

Platforms like CryptoQuant, Messari, and Dune Analytics provide data on stablecoins, including supply ratios, transaction volumes, and market dominance. These insights can help us understand whether the market is leaning towards risk or safety.

Why do these metrics matter? Because they can act as a barometer for market sentiment. For instance, if the stablecoin supply ratio is low, it might mean that the market is bullish, with many ready to invest in other cryptocurrencies. On the other hand, high stablecoin transaction volumes might indicate a cautious or bearish market, with investors preferring the safety of stablecoins.

By keeping an eye on stablecoin ratios and volumes, analysts and investors can better gauge the market’s mood, helping them make more informed decisions.

Understanding Funding Rates

Funding rates are a bit like the tolls on a financial highway, specifically for the trading of perpetual futures contracts in the cryptocurrency market. These contracts are a way to bet on the future price of cryptocurrencies without actually owning them. The funding rate is the fee that traders pay or receive to keep their positions open, and it plays a crucial role in understanding market sentiment. Here’s how:

Funding Rates For Perpetual Swaps. source — coinglass

1. What Are Funding Rates? In simple terms, funding rates are payments exchanged between buyers and sellers of perpetual contracts. They ensure the price of the contract stays close to the underlying cryptocurrency’s market price. If the funding rate is positive, buyers (those betting the price will go up) pay sellers (those betting the price will go down). If it’s negative, sellers pay buyers.
2. Importance of Monitoring Funding Rates: These rates can tell us whether most traders are bullish (expecting prices to rise) or bearish (expecting prices to fall). A high positive funding rate suggests that many are optimistic about the market going up, as buyers are willing to pay more to keep their positions. Conversely, a negative funding rate indicates bearish sentiment, with sellers dominating.
3. Platforms for Funding Rate Data: You can find information on funding rates on platforms like Bybt, Skew, and CryptoQuant. These sites show current funding rates across different exchanges, helping traders and analysts make informed decisions.

Why do funding rates matter? They’re like the market’s heartbeat, showing the balance between optimism and pessimism among traders. By understanding funding rates, you can get a sense of the market’s direction. For instance, persistently high funding rates might suggest that the market is too bullish, which could lead to a correction if everyone is on one side of the bet.

Monitoring funding rates helps traders adjust their strategies, either by taking advantage of the market sentiment or preparing for potential reversals. For analysts, it’s another tool in their kit to understand the complex dynamics of the cryptocurrency market.

Exploring HODL Waves

HODL Waves offer a unique way to visualize how long people have been holding onto their cryptocurrencies. It’s like looking at a cross-section of a tree to see its growth rings. Each ring, or wave, represents a group of people who bought their crypto at different times and have held onto it since. This view can tell us a lot about investor behavior and market cycles. Here’s how to understand HODL Waves:

Bitcoin: HODL Waves. glassnode

1. What Are HODL Waves? These are colorful charts that show the distribution of Bitcoin (or other cryptocurrencies) held over different time periods. Each color represents a time range, showing how much of the total Bitcoin supply has been moved or held within that timeframe.
2. Age Distribution: By examining which waves are growing or shrinking, we can see if more people are holding onto their crypto for the long term or if they’re moving it more frequently. A growing wave of older coins suggests that people are holding their investment for longer periods, indicating confidence in long-term value.
3. HODL Waves and Market Sentiment: Changes in HODL Waves can signal shifts in market sentiment. For example, if a large portion of Bitcoin starts moving after being held for a long time, it might indicate that long-term holders are starting to sell, possibly because they believe the market has reached a peak.

Platforms like Unchained Capital, Glassnode, and Lookintobitcoin provide tools to view and analyze HODL Waves. These platforms help investors and analysts to visualize the holding patterns and make inferences about market trends and investor confidence.

An annotated image of the UTXO age distribution. Local price peaks are labeled. The solid white lines trace “HODL waves” — a pattern of newly recent Bitcoin aging into each subsequent band, indicating that its new owners are HODLing. Only the three largest HODL waves are traced — many smaller HODL waves are also present. unchained

Why are HODL Waves important? They give us a window into the psychology of cryptocurrency investors. By understanding the holding patterns, analysts can better predict potential market movements. For instance, a surge in short-term holdings might indicate speculative trading, while an increase in long-term holdings suggests a bullish outlook among investors.

HODL Waves add another layer to the complex picture of the cryptocurrency market, offering insights into how the community’s behavior evolves over time. They can be a valuable tool for anyone trying to gauge the strength and stability of the market or looking for signs of upcoming changes.

Analyzing Hash Rate, Validators, and Nodes

Understanding the health and security of a blockchain network involves looking at its hash rate, validators, and nodes. These components are like the backbone of a network, ensuring it runs smoothly and remains secure. Let’s break down what each of these terms means and why they’re important:

1. Hash Rate: This is a measure of the total computing power being used to process transactions and secure the network. Think of it as the strength of the network. The higher the hash rate, the more difficult it is for a bad actor to attack or manipulate the blockchain. A high hash rate indicates a healthy, secure network.
2. Validators: In blockchain networks that use a proof-of-stake (PoS) system, validators are participants who lock up some of their cryptocurrencies as a form of security deposit. They are responsible for validating transactions and creating new blocks. The number and diversity of validators can give us an idea of the network’s decentralization and security. More validators mean a more distributed network, which is harder to compromise.
3. Nodes: Nodes are computers that keep copies of the blockchain and uphold the network’s rules. They can be thought of as the network’s eyes and ears, ensuring everything runs as it should. The more nodes a network has, and the more geographically spread out they are, the more decentralized and secure the network is.

You can find information about a blockchain’s hash rate on sites like Blockchain.com for Bitcoin or Etherscan for Ethereum. Validator information can often be found on the network’s official website or through blockchain explorers that support PoS blockchains. For node data, tools like Bitnodes offer insights into Bitcoin’s global node distribution.

Why does this matter? Because the strength, security, and decentralization of a blockchain are crucial for its functionality and trustworthiness. A network with a high hash rate, a large and diverse set of validators, and many nodes distributed worldwide is more robust against attacks and failures. This creates a safer environment for transactions and investments.

For analysts and investors, understanding these aspects can help assess a blockchain’s long-term viability and the potential risk associated with its cryptocurrencies. It’s like evaluating the foundation and structure of a building before deciding to move in.

Combining On-Chain and Off-Chain Data

To get the full picture of what’s happening in the cryptocurrency market, it’s crucial to look at both on-chain and off-chain data. On-chain data is like the inside story, coming directly from the blockchain, showing us transactions, wallet activities, and other metrics we’ve discussed. Off-chain data, however, comes from the outside world and includes everything from social media buzz to news headlines and economic indicators. Here’s how blending these two types of data can offer deeper insights:

1. Social Media Sentiment: The mood and opinions shared on social media platforms like Twitter or Reddit can significantly influence cryptocurrency prices. By analyzing the sentiment of posts and comments, we can gauge public interest and enthusiasm for different cryptocurrencies.
2. Search Trends: The volume of searches on engines like Google for specific cryptocurrencies or blockchain technology can act as an early indicator of growing interest or emerging trends. A spike in search volume might precede a rise in market activity.
3. Regulatory News: Changes in government regulations or legal decisions related to cryptocurrencies can have immediate effects on the market. By keeping an eye on regulatory developments, analysts can predict potential market movements.
4. Economic Indicators: Broader economic factors, like inflation rates, exchange rates, and interest rates, can also impact the cryptocurrency market. For example, high inflation might lead people to invest more in cryptocurrencies as a hedge against their local currency’s devaluation.

Tools and platforms like Santiment, LunarCRUSH, and Google Trends provide a wealth of off-chain data, including social media analysis, search trends, and news sentiment. By combining these insights with on-chain data from blockchain explorers and analytics platforms, analysts can form a more holistic view of the market’s current state and future directions.

Why is this combination powerful? Because while on-chain data tells us what’s happening within the blockchain, off-chain data provides context about the wider world’s impact on the market. For instance, a positive news article could explain a sudden increase in transactions or wallet activations that on-chain data alone might not clarify.

By incorporating both on-chain and off-chain data into their analyses, investors and analysts can make more informed decisions, spotting opportunities or risks that might not be evident from a single data source. It’s like putting together a puzzle; the more pieces you have, the clearer the picture becomes.

Conclusion

Throughout this guide, we’ve navigated the complex but fascinating world of on-chain analysis, delving into the myriad metrics and tools that data analysts can use to glean insights into the cryptocurrency market. From the basics of transaction volumes and active addresses to the nuanced behaviors of HODLers and the significance of exchange flows, we’ve covered a broad spectrum of on-chain data points. We also explored the vital role of blockchain explorers in accessing this data, the importance of monitoring staking rates, and how stablecoin ratios can serve as market sentiment indicators.

Moreover, we ventured beyond the blockchain to see how off-chain data — like social media sentiment, search trends, and regulatory news — complements on-chain metrics to provide a fuller picture of market dynamics. This holistic approach to analysis, combining on-chain and off-chain data, empowers analysts to make more informed decisions and anticipate market movements with greater confidence.

The key takeaway from our journey is the importance of continuous learning and adaptation. The cryptocurrency market is constantly evolving, with new metrics, tools, and platforms emerging regularly. Staying informed about these developments and understanding how to interpret and apply the data they provide is crucial for anyone looking to navigate the crypto space successfully.

As we look to the future, the role of on-chain analysis in the cryptocurrency industry is set to grow even more significant. As the market matures and more sophisticated analytical tools become available, the insights gleaned from on-chain data will become increasingly valuable for investors, traders, and analysts alike.

Remember, the path to mastery in on-chain analysis is ongoing. Embrace the learning curve, experiment with different tools and metrics, and stay curious about the ever-changing crypto landscape. By doing so, you’ll not only enhance your analytical skills but also contribute to the broader understanding and advancement of the cryptocurrency market.