Detailed Breakdown to Understand Crypto On-Chain Analysis and How to Utilize It

Detailed Breakdown to Understand Crypto On-Chain Analysis and How to Utilize It

On-chain analysis deploys metrics to convert blockchain-founded transaction information into actionable crypto market insights.

Most cryptocurrencies utilize public blockchains to confirm and record data. As such, the data is available ‘on the chain’ for everyone to view from any location globally.

On-chain analysis entails the use of blockchain ledger data to establish market sentiment. More exclusively, it entails analyzing transaction information and crypto wallet balances, two valuable things when deciding whether to invest.

On-chain Tools that Can be Utilized

Blockchain explorers such as SnowTrace for Available and EtherScan for Ethereum allow one to look up any smart contract or wallet address. However, they do not amass data or provide tools to make sense of the abundance of existing data points.

In response, countless sources and platforms have come to offer useful dashboards and charts to aid users in visualizing blockchain information and monitoring crypto movement.

AI Trading Robot

Most of these on-chain analytics platforms are free or provide numerous free features. Examples include Dune Analytics, Glassnode, and Messari. 

However, on-chain analysis does not indicate what should be done, meaning one must use the available information to invent a strategy.

On-chain Analysis of Bitcoin Movements 

Bitcoin is the globe’s first viable cryptocurrency and the biggest by market capitalization. As such, price shifts can induce a domino impact across the rest of the market, meaning a rise in the bitcoin process increases the price of other crypto assets.

Glassnode provides high granular metrics for on-chain Bitcoin information, such as bitcoin whales’ movements, open interest in the futures trading market, and attained market capitalization. Besides, some metrics are accessible to registered persons, while some need a subscription. 

Some metrics improve on existing ones and represent a blend of various data points that can be utilized to recognize longer-term market trends. In 2011, ‘ByteCoin,’ a BitcoinTalk forum user, proposed the Coin Days Destroyed (CDD) concept as an alternative to the Transaction Volume metric. 

CDD offers extra weight to the number of days a coin has been kept. Hence, a person who received one BTC 10 days ago would hold a similar weight as one moving 10 BTC received a day ago. 

Smart Contracts and Smart Money Flow

In traditional finance, ‘smart money’ entails capital managed by institutions, professional investors, and funds. In decentralized finance, the term refers to institutions such as crypto venture funds or whales. 

Nansen is a famous source for monitoring where smart money flows in and out. More than 100 million individual wallets have been labeled so that they do not appear as 0x32456 but as ‘3Arrow Capital.’

Nansen provides free features that allow people to follow the projects those in-the-know are presently playing with, such as a liquidity pool on Avalanche, as indicated in the picture below.

Data on Specific Projects

A person looking for data linked to a particular NFT or decentralized finance project will likely find it on Dune Analytics. This free contributor-managed platform intends to be the GitHub of Web3.

In the search bar, one is only required to type the NFT project or decentralized finance protocol they intend to know more about. Besides, they can try the ‘Discover’ tabs to view the most popular dashboards, such as Aave v3 activity on Optimism. 

Dune has several dashboards resembling Nansen’s smart money monitoring. For example, one can see what holders of the costliest NFT collection are purchasing and selling.

NFT Insight

The present white-round NFT trend has also resulted in several on-chain assessment tools exclusively focused on the nonfungible token market. Icy. Tools allow one to see real-time sales information, while CryptoSlam offers NFT sales volume.

Since items’ prices in an NFT collection are determined mainly by their shortages, traders utilize tools such as LuckyTrader and Rarity. Tools to comprehend where an item’s scarcity is in a collection based on on-chain information.

Final Thoughts

On-chain analysis, as applied by BlackProbe, is one of the platforms with a Deal Spotter feature that informs when a specific NFT is selling at a bargain based on a collection’s information. 

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