[TL;DR]

• On-chain data is a record of all transactions that have ever taken place on a specific blockchain network.

• The on-chain analysis is a research method that leverages data found on the public blockchain to help investors determine market sentiment and enhance their crypto trading strategies.

• The on-chain analysis involves gathering data, analyzing and predicting future outcomes of a cryptocurrency market.

• Anyone can trace on-chain transactions to the source wallet address and explore its transaction history, enhancing transparency and security.

• Since there are so many online tools for On-chain analysis, users need to compare and verify data from different sources to double-check the data analysis.

• Some popular On-chain analysis sites are Nansen, Glassnode, Etherscan, Dune Analytics, and Dappradar.

An overview of On-chain data analysis

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Cryptocurrencies like Bitcoin, on the market today, validate and store data using public blockchains. These public blockchains are immutable and transparent; as a result, data is accessible to everyone "on-chain" at any time and at any location in the world.

On-chain analysis, however, is a research strategy that leverages information on the public blockchain to help investors determine market sentiment and enhance strategic crypto trading & investment, or market forecast. This involves gathering data about any decentralized network and, analyzing the market to identify the condition of projects while keeping an eye on big players' moves.

The on-chain data mainly involve transaction details such as sending and receiving addresses, transferred tokens, circulating funds transaction amount, transaction fee, timestamps, miner fees, the smart contract code, market cap, transaction volume, miner rewards, and more.

On-chain data analysis dates back to 2011 when "Coin Days Destroyed," one of the earliest and most well-known on-chain metrics, was published to monitor activity on the Bitcoin network.

The importance of On-chain data analysis

• Transparency: On-chain data is the most accurate, reliable, and transparent source of blockchain information in the Crypto industry today. Since cryptocurrencies and blockchain data are transparent, they offer on-chain analysts the chance to construct a more thorough market analysis based on actual data and a fundamentals-driven approach rather than only being hype-driven.

• Keep track of real-time market trends: With on-chain data analysis, investors can keep an eye on how various currencies behave in the market sentiment. This is also vital when monitoring the activities of crypto whales, who have access to abundant financial and informational resources to dominate the market.

• Investors can Predict future market movements.

By regularly updating the on-chain data, investors can anticipate problems and stay one step ahead of the community. On-chain data analysis not only helps traders enhance their strategies but also lets them predict future market moves.

• Study investor behaviors

On-chain data provide details of certain investor behaviors. On-chain analysts can monitor the number of people HODLing a cryptocurrency and the amount of time an address has gone without transactions. If more investors are hodling onto their cryptocurrencies, fewer coins are in circulation.

• Blockchain Research

Blockchain technology, still in its nascent stage, is an exciting area of research from both technical and economic concepts. On-chain analytics gives valuable insights into the network and helps researchers understand them better.

How to use On-chain Data for market Analysis

Whether long-term or short-term investors, these on-chain processes provide timely insights and assist in making better trade decisions.

1. For tracking network strength:

Active addresses

Active addresses display how many addresses are currently in use on the network. Though this doesn't show precisely how many users there are on a network, it displays the number of addresses used by miners, exchanges, and individuals.

Transaction volume

Transaction volume informs about the monetary value, in dollars, of a cryptocurrency transferred between addresses.

Daily issuance

Daily issuance tells about the total quantity of new coins miners and stakers receive daily for work.

Supply distribution

Supply distribution shows the proportion of coins in each address. Addresses holding more than 10,000 Bitcoin have become less common over the past years, while addresses storing just ten Bitcoin have surged.

Miner revenue

Miner revenue shows the total of newly mined Bitcoin and transaction fees. High incomes depict a healthy network where miners are compensated to safeguard the long-term interests of the network.

Hash rate

Hash rate calculates the amount of processing power miners produces to protect the network. The greater the hash rate, the more secure it is.

2. To check buying and selling:

Cointime destroyed

Cointime destroyed is calculated by multiplying the number of coins transacted per day by the time they were previously held. This gives the turnover time of a cryptocurrency.

An increase in cointime destroyed means that holders are shifting coins out of storage and making profits.

Realized Profits and Losses

Realized profits and losses calculate the monetary value of coins sold at either a profit or loss. For instance, if a coin was bought for $20k and sold for $80k, the profit is $60k. If the coin was purchased for $20k and sold at $10k, the loss is $10k.

Supply in Profits and Loss

Supply in Profits and Loss, in relation to their last purchase price, shows the number of coins that are profitable or losing money. For an expanding market, there will be more coins in profit than loss.

Realized capitalization

Realized capitalization is the total of each most recent purchase price of Bitcoin in supply. Compared with market capitalization, realized capitalization is calculated by multiplying the number of coins by their current value. When the realized cap exceeds the market cap, then the overall market is sitting in profit.

Thermo Capitalisation

Thermo capitalization is the monetary value of the cryptocurrency given as compensation to miners for validating the network. The thermal cap illustrates that supply pressures from miners are reducing and having less of an impact on the price over time than the market cap.

3. To Evaluate the price of a Cryptocurrency:

Market Value to Realized Value (MVRV)

Market Value to Realized Value, or MVRV, is the ratio between the market cap value and realized cap value. A high MVRV indicates that the price of a cryptocurrency is close to a local maximum, while a low ratio suggests that the price is near the local minimum.

Network Value to Transaction (NVT)

The Network Value to Transaction ratio relates to the market cap per transaction volume. It's the most accurate representation of the price-to-earnings ratio utilized in conventional banking. It aims to compare the fundamental value of the network to its current price. A low NVT indicates bearish sentiment, while a high NVT shows bullish sentiment.

Stock-to-flow ratio

The stock-to-flow ratio is a model that predicts the future price of a cryptocurrency, assuming constant demand growth. For instance, it projects that assuming Bitcoin adoption picks up steam, the price per coin would reach AU$1 million by 2025.

Stablecoin Supply Ratio (SSR)

The Stablecoin Supply Ratio, SSR, is the ratio of the supply of a cryptocurrency and the supply of stablecoin. It displays the short-term purchasing power of Bitcoin.

Considerations for analyzing on-chain data

While on-chain data offers several benefits, these factors should be put in place when conducting on-chain data analysis:

• User's Knowledge and Experience: Users need both fundamental knowledge and multi perspectives of the blockchain to accurately analyze and predict results using the on-chain data.
  
  

• Regular updates: Since market behavior is constantly changing, information on-chain needs to be updated frequently as possible.
  
  

• Verify information from multiple sources: To make the most accurate analysis, users need to compare and verify data from various sources since there are so many online tools that provide On-chain data. This helps double-check the data analysis supplied.

Top On-chain analysis Platforms

1. Glassnode

Glassnode is an on-chain analysis platform that offers crypto market insights through on-chain indicators. Glassnode assists crypto traders with market sentiment and other relevant on-chain data to enhance users’ crypto trading decisions. The platform is popular for its in-depth reports of market indicators for numerous cryptocurrencies and has several applications that present fresh approaches to monitoring market changes.

2. Nansen

Nansen is one of the blockchain analytics platforms that combine on-chain data with a variety of wallet labels. Through its real-time dashboards and alerts, users gain a better insight into the cryptocurrency & NFT market. With Nansen analytics, one can quickly identify patterns and emerging trends that support several blockchains and possibly predict price changes.

Nansen also offers new crypto investors the opportunity to sharpen their knowledge about the industry.

3. Dune Analytics

Dune is a vital blockchain analytics tool that allows users to run straightforward SQL queries on pre-built databases to examine Ethereum data. To access almost any data stored on the blockchain, you can query the database rather than write an entirely new _script_.

Dune provides all the tools required to query, extract, and display vast volumes of blockchain data.

4. Etherscan

Etherscan is a block explorer and on-chain analytics platform for the Ethereum blockchain. It provides simple access to transaction information, including pending and approved transactions and real-world data. On Etherscan, users can trace gas fees, view details of any public ETH wallet address, analyze transaction blocks, tokens, and more

5. Santiment

Santiment is a detailed market analytics tool that provides accurate data feeds, quick signals, tailored market watches, alerts, chart layouts, and other tools to promote successful trading.

Santiment is well-known for providing its users with market information, reviews, and newsletters. Traders can view and examine charts for all coins using the various on-chain analysis tools on Santiment.

Conclusion

On-chain data analysis is a helpful tool for checking market trends and assisting investors in making informed decisions. As the cryptocurrency market continues to fluctuate daily and hourly, users need to maintain track of on-chain data and constantly advance their knowledge and experience in On-chain analysis.