What Is Crypto On-Chain Analysis and How Do You Use it


On-chain analysis, sometimes referred to as on-chain metrics or on-chain metrics, is a crucial aspect of cryptocurrency analysis and investing based on the unique characteristics of blockchain technology.

Blockchain, the driving technology of cryptocurrencies, is a distributed ledger technology that distributes information and data of every approved transaction on the network so that every node/miner/participant has a record. This ensures no single point of failure, prevents double spending, and creates an advantage in the on chain metrics crypto.

on-chain metrics

Blockchain networks store transactions as chains, with new chains laid on the new ones, so transactions become immutable, as no single node can edit blocks of transactions. All blockchain transactions are publicly accessible, allowing analysts access to Bitcoin on chain metrics, such as transaction volumes, periods of activity, and on-chain interactions relative to crypto and other financial markets.

Crypto traders who monitor crypto on-chain metrics have an advantage over regular traders.

What is on-chain?

What is on chain metrics? All blockchain transactions leave details such as sending and receiving addresses, transaction fees, amount and volume of funds, and circulating funds. These details are called crypto on chain metrics or data. The immutability of blockchain transactions means that these details can neither be deleted nor edited. Data for BTC on chain metrics is secure, transparent, and immutable.

What is on-chain analysis?

The on-chain analysis is a method of analyzing the crypto market by collecting and analyzing on-chain data retrieved from blockchains about a specific cryptocurrency, such as the history, mining hashrates, TVL, volumes, and peak periods, among other details. Traders can analyze the best on chain metrics to determine market sentiments, identify good projects, and monitor the activities of institutional investors, the so-called whales.

Main On-Chain Metrics

Concentration by Large Holders

Concentration by large holders, AKA whales, shows the percentage of the coin’s circulating supply that is held by addresses having over 1% (0.1%-1%) of the total supply. This on chain metrics meaning shows the percentage of whales and large institutional holders tracking large transactions. Crypto miners who engage in mining hardware hosting may also have large amounts of cryptocurrencies in their holding wallets.

Price Correlation with Bitcoin

What are on chain metrics that show price correlation with Bitcoin? The Bitcoin correlation metric shows the 30-day price correlation between a cryptocurrency and Bitcoin. For example, Ethereum has a 95% correlation with Bitcoin at the time of writing. Crypto investors use this metric to understand market sentiments about the price of Ethereum and predict future prices based on the price correlation.

Holders Making Money at Current Price

There is also an on-chain metrics crypto that tracks the percentage of large crypto holders that are profitable on a cryptocurrency. For example, 72% of Bitcoin holders profit based on the current price. The metric shows the percentage based on the rate of the purchase price to the current price. If the current price exceeds the average cost, the address is said to be "In the Money." If the current price is below the average cost, the address is said to be "Out of the Money."

Transactions Greater than $100k

This metric shows the total volume of transactions greater than $100,000 over seven days. The on chain metrics Ethereum shows nearly 1 million transactions with over $200,000 since 2 December 2022. This metric helps investors determine market sentiments based on the inflows and outflows and the demand for specific crypto. Large “whale” transactions always generate interest from crypto traders.

on chain metrics crypto

Holders’ Composition by Time Held

Another crucial data for Bitcoin on chain analysis is the composition of holders based on the time they’ve held Bitcoin. The metrics display the percentage of Bitcoin holders, classified into three:

  • 1+ year: classified as a Hodler
  • 1-12 months: classified as a Cruiser
  • >1 month: classified as a Trader

This metric helps traders determine how crypto holders are spread and when new traders enter the market.

Transaction Demographics

Transaction demographics, an important Ethereum on chain metrics, shows the number of transactions occurring in different trading timezones, the Western timezone and the Eastern timezone (10 am to 10 pm) UTC), for 14 days. This metric helps traders to analyze and determine peak trading periods and the associated market volatility. This is crucial to avoiding or leveraging volatility when trading.

On-Chain Signals

Traders generate on chain signals using on chain metrics for crypto, blockchain indicators, and univariate models for consistency and accuracy. In simple terms, the on chain signals system uses single variations to predict the impact of on chain metrics on the price action of specific cryptocurrencies.

The MLQ app combines fundamentals, alternative data, and ML-based insights for smarter trading and investing.” The app shows on chain-signals for:

  • Holders’ Concentration: This measures the daily changes in the position of addresses holding between 0.1% and 1% and over of a specific crypto asset. More purchases may mean bullish runs.
  • New Network Growth: This signal measures the change in the full addresses of a crypto asset with the previous week’s and how it impacts the market, positively or negatively.
  • Whale/Large transactions: This signal is based on IntoTheBlock’s large transactions metric and analyzes changes in transactions greater than $100,000.
  • Profit Status: This signal uses the 7-day moving average to measure the volume of tokens in profit, using the In The Money or Out of The Money indicator.

These on chain metrics Bitcoin help investors to make smarter decisions while trading cryptocurrencies.

Exchange Signals

Exchange signals are signals from transaction metrics based on crypto exchanges and are measured more frequently than Bitcoin on chain metrics. They are typically recalculated every minute and are suited for high-frequency trading (HFT) for every crypto asset. Exchange signals show these:

  • Bid-Ask volume Imbalance: This signal measures the changes in the difference between the bid-price volume and the ask-price volume, so traders know the spread on every asset.
  • Smart Price: For on-chain analysis Bitcoin, the Smart Price weighs the bid/ask prices by their inverse volumes to show inverse pricing.

Future of On-Chain Analysis:

Bitcoin on chain metrics

Bitcoin on-chain metrics improve decision-making and trading for crypto investors and improves as the data set increases. The on-chain analysis relies heavily on data; advances in data-related technology, such as artificial intelligence (AI) and machine learning (ML), will increase the proficiency of on chain bitcoin analysis.

The on-chain analysis is a method of analyzing the crypto market by collecting and analyzing on-chain data retrieved from blockchains about a specific cryptocurrency.
You analyze the Bitcoin blockchain using on-chain metrics from data measuring the history, mining hashrates, TVL, volumes, peak periods, etc. Changes in these metrics generate signals which impact the market.
The on-chain analysis involves collecting and analyzing on-chain data and combining it with market analysis, while off-chain analysis involves only fundamental and technical analysis.
Bitcoin is a proof-of-work distributed ledger blockchain. It is the first cryptocurrency and blockchain and the most successful so far.
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