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What Is Crypto On-Chain Analysis?


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

What Is Crypto On-Chain Analysis?

Blockchain-based transaction data is transformed into useful crypto market information using on-chain analytics.

The vast majority of cryptocurrencies on the market today use public blockchains to verify and record data. That's why data is available "on the chain" for anyone to see, anywhere in the world, at any time.

On-chain analysis refers to a method of using information from a blockchain ledger to determine market sentiment. Specifically, it involves looking at transaction data and crypto wallet balances – both useful when deciding whether to invest. After all, if a coin is not being traded by anyone and the vast majority of its circulating supply is controlled by a handful of large holders known as whales, then investing in it is probably not a good idea.

On-Chain tools you can use

Blockchain explorers like EtherScan for Ethereum and SnowTrace for Avalanche allow you to search for any wallet address or smart contract. But they do not collect data or provide tools to make sense of the wealth of data points that exist.

In response, countless platforms and resources have emerged, each offering comprehensive charts and dashboards to better help users visualize blockchain data and track the movement of individual cryptos and wallets.

Most of these on-chain analytics platforms are free or at least offer many free features. Some of the most popular are:

  • Glassnode
  • IntoTheBlock
  • Nansen
  • duneanalytics
  • Messari

But chain analysis doesn't tell you what to do. It is up to you to design a strategy based on the available information. Here are some suggestions on how to make the most of blockchain data dump.

Bitcoin Movements

Bitcoin (BTC) is the world's first viable cryptocurrency and the largest by market cap. Therefore, price movements can often have a domino effect on the rest of the market; i.e. if the bitcoin price goes up, other crypto-assets go up as well and vice versa. For this reason, many investors often keep a close eye on Bitcoin's on-chain activity.

  • Glassnode provides very detailed metrics for on-chain Bitcoin data such as bitcoin whale movements, futures market open interest, mining difficulty, and realized market cap. Some metrics are free for registered users, while others require a subscription.
  • Some metrics enhance existing ones and represent a combination of different data points that can be very helpful in identifying longer-term market trends.
  • The concept of Coin Days (CDD) was proposed in 2011 by BitcoinTalk forum user “ByteCoin” as an alternative to the trading volume metric, which they claim does not take into account the data manipulations that occur. same room over and over CDD gives more weight to the number of days a coin is held, so someone who bought a BTC 10 days ago will have the same weight as someone who moved 10 BTC bought a year ago. This can give you an idea of ​​the HODLing behavior of bitcoiners.
  • Glassnode is largely dedicated to Bitcoin, although it does offer some charts for Ethereum. For smart contract activities like on-chain analysis of decentralized finance (DeFi) or non-tradable tokens (NFT), you will have to look to other sources.

Smart contracts and smart money flow

In traditional finance, “smart money” refers to all capital controlled by professional investors, institutions, and funds. The term has also entered the DeFi lexicon, where it refers to institutions such as crypto venture capital funds or whales (those who hold proportionately large amounts of crypto).

Nansen is a popular resource on the in and out of smart money. The platform has tagged over 100 million individual wallets so they don't appear as 0x32456 but as "3 Arrow Capital". As seen in the image below, it offers free features, including “Hot DeFi Contracts” that allow you to track projects that experts are currently engaged in, such as a liquidity pool on Avalanche.

Data on specific projects

If you're looking for data on a particular DeFi or NFT project, you'll likely find it on Dune Analytics, a free, contributor-run platform that wants to be the GitHub of the Web 3.

Simply type the NFT project or DeFi protocol you want to learn more about in the search bar. You can also try the "Explore" tab to see popular boards like Aave v3 activity on Optimism (layer 2 scaling system):

Dune has several dashboards similar to Nansen's Smart Money Tracker. For example, you can see which owners of the most expensive NFT collection, the Bored Apes Yacht Club (BAYC), are buying and selling. But you will have to search for dashboards like this separately.

NFT information

  • The recent white-hot trend of NFTs has also given rise to a number of on-chain analysis tools focused specifically on the NFT market.
  • CryptoSlam offers NFT sales volume, while Icy. Tools lets you view real-time sales data.
  • Because the price of items in an NFT collection is often determined by their rarity, traders use tools like Rarity. Tools and LuckyTrader to figure out where the rarity of a single item in a collection is based on data.
  • BlockProbe is an example of a platform with a Deal Spotter feature that tells users that a particular NFT is selling at an affordable price based on data from a collection.
  • For a general analysis, a particularly popular resource is Dune's OpenSea Activity Dashboard. NFT traders use this dashboard to gauge sentiment, and daily volumes above $100 million are often seen as an indicator of a rising NFT market.