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What Is Crypto On-Chain Analysis? Definition & Meaning

Blockchain transaction data is publicly available, creating possibilities for data science and machine learning. All trading and investment activity can be extracted from the public ledger and analyzed, which is what is known as “On-Chain Analysis.” Using this data can give the trader hints about the market’s direction. On-chain analytics is a field of study examining the fundamentals, utility, and transaction activity of cryptocurrency and blockchain data. Analysts try to improve their understanding of  network movements by analyzing various metrics. 

Some of the most common types of analysis include transaction volumes, block details, price correlation, exchange inflows and outflows, user adoption, and  more.

History of On-Chain Analysis

The first form of on-chain analysis is known as “coin days destroyed.” It was created by ByteCoin in 2011 as a way to measure market health and participation by looking at the age of bitcoins transferred on a given day. Another Bitcoin metric was added three years later, known as a “Network Value.” It utilizes principles from Metcalfe’s Law, focusing on unique address growth. In the same year, John Racliff posted an early version of what would become known as HODL waves. Willy Woo, one of the most widely followed on-chain analysts, created Network Value to Transactions Ratio, also known as NVT, in 2017, when the explosion of on-chain analysis truly took off. Glassnode, Coin Metrics, and several other major players in the industry started to develop their own metrics as well. 

It’s worth noting that since these developments in 2018, there has been a massive increase in the quantitative use of on-chain analysis. This has brought into the picture multiple new data providers and analysts and continues to spur the development of new analytic processes.

How does on-chain analysis work?

Metrics for on-chain analysis are wide and varied, but can generally be categorized  into three main types. These include crypto market capitalization, HODL status, and the future prospects of the cryptocurrency in question.

How to Use On-chain Analysis for Crypto?

As cryptocurrency and blockchain data are transparent and easily obtained, they can provide opportunities for on-chain analysts to research a network and understand the cryptocurrency market based upon fundamental data.

How Is On-Chain Different from Off-Chain?

Transactions can be identified as “On-chain” or “Off-chain.” Off-chain transactions are not fully executed or even partially performed and recorded on the blockchain. This is the opposite of on-chain transactions, where the transfer of value or data occurs on a blockchain network and therefore gets recorded for all to see. 

Some transactions are considered “off-chain”, such as the exchange of private keys from one party to another, allowing full access to the owner’s funds. This is one way that some people bypass high transaction costs for exchanging crypto, such as Bitcoin. 

One-chain transactions are recorded to the blockchain and are the most common transactions involving cryptocurrency. There is a slowdown in the transaction speed as opposed to handing someone the private keys or even a cold storage wallet. An on-chain transaction is infinitely safer. You can sometimes notice anomalies that suggest there is more off-chain movement.

What are the Advantages of On-Chain Analysis?

While the idea of on-chain analytics is relatively new, it gives you the ability to make more informed investment decisions regarding cryptocurrency. Some of the main advantages include: 

What are the Disadvantages of On-Chain Analysis?

While the advantages of on-chain analysis are numerous, it is not a perfect science. Keep a few things in the back of your mind while looking through it. 

What are the On-chain Analysis Metrics?

To use on-chain analytics for your trading is essential to have up-to-date information. There are several services, such as Glassnode, Messari, and Coinmetrics, where you can get the following information. Incorporating this information into your trading can give you an advantage.

Using On-chain Analysis to Measure the Network Strength

The following metrics are some of the most important that you can use to assess a crypto project’s health, viability, and perhaps potential direction. The main idea is to determine how a network and its health are performing. 

The number of active addresses can show activity on a network

Using On-chain Analysis to See Who’s Buying and Selling

The on-chain indicators mentioned previously represent the longer-term health of the network, but the following indicators will be more representative of short to mid-term market action. They can show such things as how much is being held by exchanges, miners, and individuals. It also can show whether or not they are in profit or are currently at a loss. This can be a telling indicator of what market sentiment may be like.

One of the most common forms of analysis is paying attention to the number of coins moved on to exchanges. If longer-term investors have made significant money over the last six months and are starting to move coins onto exchanges, it could indicate they are preparing to sell their holdings, causing a bit of a correction.

HODL waves illustrate the percentage of coins held for different periods


On-chain analytics can be helpful for both short-term and long-term traders. It is the closest thing to traditional fundamental analysis that the trader has in the crypto markets because, quite frankly, we have no idea where these markets end up in the future. They are still very new, and the final use case scenario is more likely than not going to be something people are not even thinking of right now.

Understanding whether or not addresses and transactions are rising, or falling can give you an idea as to whether or not there is interest in the network, as it shows not only usage but potentially new users as well. You can also look at other things, such as whether or not miners are flooding the market with supply or if supply is starting to dwindle.

By understanding the underlying health of a network, you can get an idea as to whether there are many possibilities when it comes to growth, value, and, most notably, for investors: price appreciation. Even if you are not holding the actual crypto and trading CFDs at PrimeXBT, you can use this type of analysis to build on top of a trading system to further your success.

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