An Intro to On-Chain Metrics
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On-chain metrics are live data that helps view transactions, track wallets, and display other data-based metrics that occur on a ledger. The On-chain analysis is utilized by traders, analysts, and many others to forecast the next move the market may make in higher time frames. This article will discuss how monitoring On-Chain Analysis may* help you make a better judgment when investing in crypto.
Content:
General Information-
What is On-Chain Metrics?
Types of On-Chain Indicators
Additional Information-
Do Traders use On-Chain Analysis?
The Downside of On-Chain Analysis
General Information-
1. What is On-Chain Metrics?
On-Chain Metrics is a tool utilized for examining wallets, transaction activity, exchange flows, hodlers behavior and so much more on any public ledger. Since Bitcoin is a public ledger all the data can be pointed to on the ledger with 100% transparency. If you discover a wallet, you can see how much they hold, what time they sent/received Bitcoin, and a lot more. On-Chain analysis compiles all the data and creates different types of indicators that we will discuss further.
2. Types of On-Chain Indicators
There are hundreds of On-chain metrics in existence, but we will cover some of the popular On-Chain metrics. For this article, we will be using graphics from Glassnode and LookintoBitcoin. The first on-chain metric we will cover is “1yr+ HODL Wave” as it displays coins that have been locked up for over one year. Currently, 65.77% of bitcoin has been untouched for over one year. Bitcoin holders are focusing on the long haul. The second on-chain metric is “Wallet Sizes: > 1,000 BTC” as it shows wallets that hold over 1,000 Bitcoin by address count. In the photo, most 1,000 BTC wallets distributed at 69k(2490 wallets) and are starting to re-accumulate at the 30k(2210 wallets) lows. Second to last is another wallet tracker of “Wallet sizes: > 1 BTC” that recently hit all-time highs. Lastly, we are seeing “Accumulation Trend Score” hit 1. The accumulation trend score maxed out three days in a row which shows that we are getting close to a local reversal. Ultimately, there is a lot of data to be interpreted and it displays a different side of analytics that can’t be discovered in any other market.
Additional Information-
1. Do Traders use On-Chain Analysis?
Yes, most traders who understand On-Chain analysis love it. It is more important to note that On-Chain analytics is a profession. Understanding human behavior during peak euphoria or fear alongside specific on-chain metrics tells a story. But as most are aware there is no single indicator that is good at forecasting the market. Instead, it's better to utilize multiple on-chain metrics that display confluence for predicting a move. In addition, On-Chain Analytics is best on high time frames and is not short. Day traders cannot use on-chain metrics efficiently. Hedge funds, Financial institutions, and Big Banks usually focus on the higher time frames. So they hire multiple analysts like research analysts(fundamentals), technical analysts(traders who understand exits/entries), and even on-chain analysts(understanding the bigger picture) to have confluence across the board to make the correct decision when trading.
2. The Downside of On-Chain Analysis
While On-Chain analysis is a new way of scanning the market we should understand that there will be pros and cons. On-chain analysis is best on high time frames so it's effective to use it with a longer-term strategy. This leads to the only downside of On-Chain analysis. On-Chain analysis is ineffective for swing trading or day trading. Most of the photos shared above show all of Bitcoin's price history so it takes time for data to display. But, if your investment strategy is predominantly high time frame then using On-chain for confluence is an excellent strategy