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On-chain analysis

2022/08/16 - 08:02

The important thing about blockchain technology is that all data related to transactions can be viewed and reviewed. For this reason, this information can be used in many cases such as machine learning, analysis, data science, etc. In fact, cryptocurrencies are the only assets where all transactions and investments related to them can be analyzed and reviewed through access to a distributed ledger. The analysis that is performed using the data within the blockchain network of any cryptocurrency is called on-chain analysis or on-chain data.

Due to the possibility of accessing financial data through the blockchain, which is provided to users, analysts can use the available information to review and analyze the activities and applications of the network in a specified period of time.

on chain analysis

What is on Chain analysis?

On-chain analysis is an emerging field that can be used to investigate the fundamental factors, benefits and transactions of a cryptocurrency and its blockchain network. Analysts who use On-chain Data are trying to better predict the price movements of a cryptocurrency in the future by increasing and improving their understanding of the network and analyzing and examining various metrics. Normally, in the on-chain analysis, things like volume of transactions, mining details like block reward, price dependencies, entry and exit of capital from exchanges and other similar things are checked.

On chain analysis is very similar to fundamental analysis, but the main difference is that in the analysis of that chain, the data and information in the blockchain are used to determine the value of a network; While fundamental analysis is used to determine the real value of a project or company.

In short, one of the most important uses of On Chain data is the use of data related to transactions and wallets to determine the value of a network. In other words, it helps to avoid entering and investing in a cryptocurrency or project due to hyped hype.

Why should we choose to analyze that data chain?

In today's world, with wealth being in the hands of a few, the economy is in a sick state. Today, you cannot check the transactions of governments and important people; But in the analysis of on Chain Data, this is possible, and this can reduce many financial corruptions. Technical analysis examines only price; While On-Chain Data, in addition to the price, also detects people's feelings towards Bitcoin or any other digital currency, and due to the data, it provides, we can sometimes rely on it even more than technical analysis.

Data analysis or technical analysis?

Many professionals believe that everything that happens in the market depends on the price; So, the price help can be predicted. In the financial markets, especially the digital currency market, there is never 100% information and everything depends on probability. In addition, we have seen in many cases that technical analysis can be wrong. Despite the insistence of technicians that price changes are enough to predict the market, still analyzing it can increase your confidence in entering a trade.
The wisest way is to get approval from both technical and on-chain data to enter a position.

Data analysis or technical analysis?

Using that chain data in trade

In the previous parts, we examined the concept of on-chain analysis. Different traders and analysts can use each of these information and data in their decisions and transactions based on their goals and needs. For example, the amount of assets entering and leaving a cryptocurrency or transferring assets from wallets to exchanges or other activities of people in the network can determine the future price of cryptocurrencies.

Note that the use of intra-chain analysis alone cannot be suitable for all time frames and types of traders, and everyone is obliged to integrate this analysis with other types of tools, indicators or analysis according to their needs, strategy and trading plan.

Investor’s behavior towards the market price 

The first parameter in this section shows the comparison of the average purchase price of addresses with inventory, with the current price. If the average price of buying an address is lower than the current price, it is called in the money, and if the average price of buying an address is higher than the current price, it is called Out of the money. As you can see in the figure below, the average of these addresses is displayed as a percentage.

Distribution of investors based on cryptocurrency holding period 

This parameter in the analysis of intra-chain data indicates the distribution of ownership of an asset based on the holding period of that asset. In this category, the addresses holding a cryptocurrency are divided into three categories based on the duration of its holding:
1.    More than one year: Holders
2.    1 to 12 months: medium-term investor
3.    Less than a month: Trader

Enemies of on Chain data analysis 

The first group: Experts are against the hard-headedness of this analysis because they believe that only price changes are enough to examine digital assets and the market 's price future.

The second group: there are people who are adamantly against using other people's account information and consider checking them as a violation of the law; This is despite the fact that the transparency of the blockchain can eliminate many economic corruptions such as rent and... Why?

History of such analysis

The history of such analysis goes back to 2011; That is, when the Coin Days Destroyed index, abbreviated as CDD, was created as a measure to value Bitcoin and was the first index to use the age of Bitcoin addresses. However, many such important indicators have been developed in recent years. One of the first widely used indicators for cryptocurrencies was the Network Value to Transaction (NVT) ratio, which was designed by Chris Burniske and Jack Tatar in the summer of 2017.
Comparing the value of the network to the volume of transactions recorded on the blockchain helps us identify when a digital currency is overvalued. When the value of the network is not justified by the volume of transactions, the NVT ratio is somewhat high. Also, considering the transaction volume, if the value of the network is unusually low, overvaluation may be reasonable. The NVT ratio is often compared to the price-to-earnings ratio for stocks; So, in a similar way it can be used to find the right currencies to buy or sell or hold.

Sometime later, experts tried to improve the ratio of NVT and make more accurate assessments. An example of these efforts is the development of the Network Value to Transaction Signal (NVTS). This signal works by considering the new day's moving average (MA) of the transaction volume. We see that the fundamental methods of valuing digital currencies are constantly evolving.

Dissatisfaction with primitive criteria such as price or volume or other concepts derived from traditional markets and technical analysis led to the introduction of other criteria such as market capitalization. Many comparison websites use the same criteria to rank cryptocurrencies. However, since cryptocurrencies are more like money or commodities than corporate stocks, market capitalization is an imprecise and misleading measure. For this reason, experts again designed a new set of criteria to help traders more accurately evaluate the correctness of blockchain networks. Many of these new metrics rely on the concept of unspent transaction outputs (UTXO).

History of such analysis

By tracking UTXO, we can see when a specific wallet last moved its coins or how long a given address has held its coins. With UTXO data in a blockchain, reliable signals can be obtained; For this reason, all metrics that rely on this concept have gradually evolved into on-chain metrics such as realized market value, HODL Waves, and percentage of stock in profit or loss.

Realized market cap is an optimized version of the market cap index and has none of the obstacles and drawbacks that this index faced for fundamental analysis of digital currencies using blockchain data. Nick Carter and Antoine Le Calvez designed this index; An index that aggregates all unspent outputs of a transaction and assigns a price to each of these outputs based on the last time they were moved.

In October 2018, Mahmud Marov and David Puell introduced the market value to realized value ratio (MVRV). This ratio can be seen as an oscillator that historically takes into account specific periods when Bitcoin has been overvalued or undervalued.

The point we should pay attention to here is that Ethereum, as the second largest blockchain network, is different from Bitcoin and some altcoins; Therefore, some of the criteria applied to Bitcoin and other similar currencies such as Bitcoin Cash and Litecoin are not directly applicable to Ethereum and its similar Blockchain, and more suitable methods should be found to transfer these criteria to other digital currencies.


The analysis of on chain data is a new method for market analysis that was first mentioned in 2011; But its use became more prominent in 2017. There are many stories about using this analysis to examine the future of the market price, each of which has its critics and fans; But, anyway, this is a new method for market analysis and very complete; So that maybe it can be used as technical analysis in the future.
Due to the age of this analysis, you may not be able to find suitable resources for training and how to use it. At Asiasignal’s VIP channel, we publish analysis of on chain data of digital currency market, especially Bitcoin, which you can access Asiasignal’s VIP indicator easily. Buying a premium account of trading view will make everything easier for you.

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