How to Use On-chain Metrics to Evaluate Crypto Market Trends

A guide on using on-chain metrics for analyzing crypto market trends
How to Use On-chain Metrics to Evaluate Crypto Market Trends

Bitcoin and Ethereum keep all transactions openly documented. Throughout the years, numerous metrics and analytical instruments have been created to improve our grasp of market trends, network activity, and how investors act. On-chain metrics act as the beacon for investors, helping them to understand the market sentiment. Here, we will explore the use of onchain metrics to evaluate crypto market trends:

What is on-chain metrics?

Onchain data refers to all the details of information which directly go into the blockchain and the overall design of the structure. This entails attributes like transaction details, records saved in smart contracts, historical data relating to blockchain assets, and many more.

Importance of on-chain metrics:

Total transactions

Tracking patterns in the sum of transactions can uncover the network's well-being, offering clues about its expansion, or even pinpointing problems if there are unexpected decreases in activity.

Engaged wallets

The number of wallets that have engaged with the blockchain over a certain period shows how involved users are and the size of the network's community. Keeping an eye on engaged wallets provides important insights into how active users are, the health of the network, and the possibility of a growing community.

TVL (Total Value Locked)

In theoretical terms, this term generalizes the possession of all coins considering them as assets stored in a decentralized finance (DeFi) environment. It points to the absolute and relative levels of DeFi projects, which is critical to evaluating the state of health of the DeFi ecosystem.

Using onchain metrics to evaluate crypto market trends

Incorporating on-chain analysis into your trading

To fully benefit from on-chain analysis evaluation, it's crucial to ensure you're using the latest information.

On-chain analysis to measure the network strength

The listed indicators provide a summary for investors and speculators about the network, covering its security, usage, and monetary policy operations. Are the fundamental long-term aspects solid? Is the network expanding? These blockchain instruments will help us understand.

1. Active addresses

Active addresses indicate the quantity of active addresses present on the network. Although they do not directly reveal the exact number of users across a network, they provide insights into the utilization of addresses by exchanges, miners, and users. Over time, there has been a historical link between the number of active addresses and the price of cryptocurrencies.

 2. Supply distribution

Coin allocation illustrates the proportion of coins stored at locations sorted by volume. For instance, locations with over ten thousand bitcoins have seen a decline recently, whereas locations with fewer than ten bitcoins have seen an increase.

3. Hash rate

Hash rate indicates the quantity of computational strength that miners produce to protect the network. In general, the greater the hash rate, the more secure the network is.

4. Daily issuance

Every day, the total number of newly minted coins given to miners and stakers is released. From this one can conclude that economic policy of managing the money supply of this cryptocurrency is effective because with two years more often it reduces the amount of money by two and with four years limits the total amount of money under the the total limitation of 21 million.

5. Miner revenue

Miner earnings come from the total value of newly extracted bitcoins and the fees associated with transactions. Strong earnings indicate a robust network where miners are motivated to safeguard the network's future.

On-chain analysis to see who’s buying and selling

The on-chain metrics listed above indicate the overall well-being of the network over time, whereas the subsequent metrics better reflect the market's short to mid-term behavior. These metrics can reveal the amount of cryptocurrency being stored by miners, exchanges, and individuals, as well as their financial status, indicating the prevailing market mood.

1. Realised capitalisation

Capitalization realization combines the latest sale prices of all available bitcoins. This is in contrast to market capitalization, which is the total number of bitcoins times their present value. If the realized cap exceeds the market cap, it indicates that the entire market is experiencing a profit.

2. Cointime destroyed

The calculation for cointime destroyed involves multiplying the daily transactions of coins by the duration they were stored. Essentially, it reveals the rate at which a cryptocurrency is being traded. A rise in cointime destroyed indicates that investors are selling their coins and making profits.

 3. HODL waves

You might be aware that 'hodl' is a cozy nickname for investors who choose to keep their cryptocurrencies for a long time instead of making frequent trades. HODL charts illustrate the bitcoin values retained today, beginning with amounts held less than one month to those held longer than seven years. For example, from December and January, there were increased holding of currencies for more than seven years showing that ‘hodlers’ are coming on to the network.

4. Supply in profits and loss

The balance between earnings and expenses reveals the quantity of coins that are either making a profit or incurring a loss, relative to their purchase cost. In an expanding market, there will be a higher number of coins generating profits than those experiencing losses.

 5. Thermo capitalisation

Thermo capitalization refers to the amount of cryptocurrency received by miners for confirming transactions on the network. When looked at alongside the market capitalization, a drop in the thermo capitalization indicates that the influence of miners on the price is lessening as the supply of cryptocurrency from them decreases.

6. Realised profits and losses

Gross profits and losses track the monetary value of bitcoins that are either sold at a gain or a loss. For instance, if a bitcoin was bought for $10k and then sold for $50k that would be considered a $40k profit.

On-chain metrics to evaluate a cryptocurrency’s price

If you're frequently buying and selling cryptocurrencies, it's important to stay informed about market movements. The following indicators can assist in understanding the current market trends.

1. Stablecoin Supply Ratio (SSR)

The Stablecoin Supply Ratio compares the amount of a cryptocurrency's total supply to the supply of stablecoins. In other words, it reveals how much value of it is accumulated over a short period of time. No matter whether you are bullish and planning on holding for months or even years, or bearish and planning to flip coins within minutes or hours, these tools that can be implemented on the blockchain can be of help in getting you up to date information and thus help you make better decisions.

Blockchain analysis is a relatively new area that has yet to be fully explored, which means those who get in early have a competitive edge in the market. Additionally, it highlights the strength of a financial system that is open and transparent.

2. Market Value to Realized Value (MVRV)

Market Value to Realized Value (MVRV) measures the comparison between the market capitalization and the realized capitalization. For instance, a significant MVRV for bitcoin has traditionally signaled that its price was close to reaching its peak, whereas a minimal ratio has suggested that the price is close to its lowest point.

3. Stock-to-flow ratio

The stock-to-flow ratio serves as a framework for forecasting the value of bitcoin should its demand keep escalating. For instance, it suggests that should bitcoin's use persist without interruption, it could reach AU$1 million per coin by the year 2025.

4. Network Value to Transaction (NVT)

The Network Value to Transaction ratio evaluates the market capitalization in relation to the transaction activity. It serves as the nearest equivalent in the cryptocurrency realm to the Price to Earnings ratio employed in conventional finance. In essence, it seeks to assess the intrinsic worth of the network in comparison to its prevailing market price. A low NVT indicates a pessimistic outlook, whereas a high NVT indicates an optimistic outlook.

On-chain market metrics are a crucial instrument for any investor in the cryptocurrency space looking to maneuver through the intricacies of the market. As the cryptocurrency market evolves and grows more sophisticated, the importance of analyzing metrics on the blockchain will surely increase in the development of effective investment plans.


How do you analyze market trends in crypto?

To analyze crypto market trends, start by examining historical price data and chart patterns to identify trends and potential reversals. Utilize technical analysis tools such as moving averages, the Relative Strength Index (RSI), and Bollinger Bands. Monitor market sentiment indicators, including news, social media trends, and trading volumes. Stay updated on regulatory news and macroeconomic factors affecting the market.

What is the Onchain activity in crypto?

On-chain activity in crypto refers to all transactions and operations recorded directly on a blockchain. This includes cryptocurrencies' transfers, smart contract executions, and interactions with decentralized applications (dApps). On-chain data provides insights into network usage, transaction volumes, and overall blockchain health and activity.

How do we get Onchain data?

To get on-chain data, use blockchain explorers like Etherscan for Ethereum or for Bitcoin. These platforms provide transaction details, wallet activities, and network statistics. Additionally, APIs from services like Glassnode or Chainalysis offer more comprehensive and customizable on-chain data for in-depth analysis and insights.

What is the leading indicator in crypto?

A leading indicator in crypto is a metric that predicts future market movements. Examples include trading volume, open interest in futures contracts, and on-chain metrics like active addresses and transaction counts. These indicators help forecast price trends and market sentiment before changes occur.

What is Onchain metadata?

Onchain metadata refers to data embedded directly within a blockchain transaction, providing additional context or information about that transaction. This can include details about assets, ownership, or specific conditions related to the transaction. It ensures transparency and traceability, enhancing the utility and functionality of blockchain applications.

Disclaimer: Analytics Insight does not provide financial advice or guidance. Also note that the cryptocurrencies mentioned/listed on the website could potentially be scams, i.e. designed to induce you to invest financial resources that may be lost forever and not be recoverable once investments are made. You are responsible for conducting your own research (DYOR) before making any investments. Read more here.

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