You wake up and a new day has started. You check the price of Bitcoin, it has dropped significantly. Your heart sinks. You feel the pressure of making a trading decision. Should you sell? Wait? Buy more? You have no idea what is causing the drop. You panic. This is a familiar scenario for many traders. Prices of Bitcoin are highly volatile. That volatility can cause sharp price movements in minutes or even seconds. For traders, time is of the essence. The quicker they react to price changes, the better. On-chain analysis and bitcoin indicators can help you make informed trading decisions so you’re not left guessing why prices are moving and what to expect next. This article will unpack the value of on-chain analysis for Bitcoin traders and illustrate how you can use on-chain metrics to make more profitable and informed trading decisions.
Bitcoin Magazine Pro’s Bitcoin Analysis provides traders valuable insights to help them achieve their objectives. The on-chain analysis tools offer clear, easy-to-read data and visuals that help you quickly understand what’s happening in the market so you can react accordingly.
What are On-Chain Transactions?
On-chain transactions represent Bitcoin transactions that occur directly on the blockchain. Every time an on-chain transaction occurs, it updates the overall blockchain network. These transactions are stored on the distributed ledger and visible to anyone with a copy.
They are transparent and immutable. Once an on-chain transaction is confirmed, it cannot be altered, so any errors will persist on the blockchain forever.
Limitations of On-Chain Transactions and the Need for Off-Chain Solutions
On-chain transactions require network consensus for validation. The transaction needs to be validated by several network participants. Miners must then solve complicated mathematical problems to bundle the validated transactions into blocks and add them to the blockchain ledger.
This process can be extremely time-consuming. As the popularity of Bitcoin and blockchain increases, the transaction volume rises. This congests the network, so more time is required to verify and add a transaction to the public ledger. This also simultaneously increases the transaction fees. This is where off-chain transactions can step in and solve these problems.
Key On-Chain Analysis Data Worth Understanding
The following metrics are among the most important to analyze when conducting an on-chain analysis of Bitcoin.
All Exchanges Reserve: What It Is and Why It Matters
All Exchanges Reserve measures the total amount of Bitcoin reserves held on all exchanges. This metric measures potential coins to sell on the market.
An increase in the All Exchanges Reserve on-chain indicator highlights Bitcoin's growing selling power. If the reserve decreases, it occurs when many bitcoins flow out of all exchanges; the price will likely go up due to a sell-side liquidity crunch.
Transaction Count: Total Bitcoin Activity
Transaction Count measures the total value of Bitcoin transacted on a given day. A high transaction count often signals increased market activity. In public blockchain networks like Bitcoin, an uptick in transaction count can indicate that the network is functioning healthily and that there is demand for its services. It reflects the robustness of the blockchain’s infrastructure.
PI-Cycle Top Indicator: Forecasting Bitcoin Market Cycles
The Pi Cycle Top Indicator is a precious tool for forecasting the peaks of Bitcoin’s market cycles. It aims to predict when the price is likely to reach its all-time high before undergoing a downturn. It operates on significant high time frames and has demonstrated a strong track record in identifying the highest points in Bitcoin’s major price movements.
Bitcoin MVRV-Z Score: Spotting Market Peaks and Bottoms
The MVRV Z-score helps spot when the market value significantly deviates from the realized value. When the z-score registers a level between 7 and 9, it signals the peak of market cycles.
When the z-score registers a point at -0.10 or less, the market value is considerably lower than the realized value, historically leading to substantial returns for those who bought Bitcoin during such periods.
Net Unrealized Profit/Loss: Understanding Market Sentiment
The NUPL reveals market participants' current and past sentiments at a specific time. Identifying the level of sentiment at any given time provides valuable insights for forecasting Bitcoin’s future price movements. The most lucrative times to sell are when the chart enters the Euphoria / Greed mark.
Bitcoin Network Hashrate: Measuring Security
The hash rate reflects the computational power securing the Bitcoin network. A rising hash rate indicates increased network security.
The above chart signals the mining rate, which is a security measure for Bitcoin. It signifies the extent of computational power engaged in the network. With higher levels of hashing power in operation, the network becomes increasingly resistant to potential attempts to overpower or undermine its security.
Wallet Balances: Understanding Accumulation and Distribution Patterns
Analyzing wallet balances can reveal accumulation or distribution patterns among investors.
Large wallet movements can be indicative of market sentiment. Wallet addresses can be used to understand whether Bitcoin adoption is increasing or decreasing generally over time and whether usage is increasing or decreasing among specific cohorts.
How On-Chain Transactions Work
The blockchain operates based on protocols that establish rules for all transactions. These rules vary from one blockchain to another, and what constitutes an on-chain transaction on one may not apply to another. The blockchain protocols determine on-chain transactions. It helps to look at how transactions on the Bitcoin blockchain are processed to understand on-chain transactions fully.
The Bitcoin blockchain network was built primarily to send money from one wallet to another without needing a central authority or middleman like a bank. It combines distributed networks and a ledger to ensure that payments are sent directly from one party to another.
Steps for Processing Bitcoin On-Chain Transactions
1. Transaction Creation
To initiate a transaction on the Bitcoin blockchain, a sender creates a transaction to transfer Bitcoin to a recipient’s wallet address. This transaction will be made public on the blockchain network and processed by independent nodes, or computers, on the Bitcoin network.
2. Transaction Verification
Before processing the transaction, the Bitcoin network verifies that the sender has enough Bitcoin to complete the transaction. The network does this by checking the blockchain’s public ledger to confirm the amount of Bitcoin in the sender’s wallet address.
3. Consensus Mechanism
Once verified, the transaction is combined with other transactions waiting to be processed into a block. For the Bitcoin network to maintain its security, nodes must prove the authenticity of their transactions by providing proof of work. This proof is called a consensus protocol, i.e., rules determining what transactions should be processed.
The Bitcoin network achieves this consensus by creating a hard puzzle that all nodes or miners must compete to solve. This puzzle can only be solved by iteration (trial and error), which requires brute computational power.
4. Transaction Processing
The first node to solve this puzzle gets to process all the transactions in a block, after which all other nodes verify the transactions. After verification, the winning node publishes the block to the blockchain, gets rewarded with Bitcoin, and all other nodes update their ledger copy.
The Cost of Processing On-Chain Bitcoin Transactions
Senders can choose between different transaction speeds when sending an on-chain Bitcoin transaction. Generally, the faster a transaction is processed, the higher the fees.
Each Bitcoin block has a size limit of 1MB that can only accommodate so many transactions. When the Bitcoin network is busy, a backlog of transactions may be waiting to be processed. Higher fees incentivize miners to prioritize your transaction over others, processing it faster.
Confirmations and Finality
When a sender sends a Bitcoin transaction, it is verified and processed. After processing, this transaction is considered complete. It isn’t until other nodes on the network confirm the transaction that it is truly secure.
Each time a new block is added to the Bitcoin blockchain after a transaction has been processed, it is said to be confirmed. The more confirmations a Bitcoin transaction has, the more secure it is.
The Scalability Challenge of Bitcoin's On-Chain Transactions and the Emergence of Off-Chain Solutions
This is because attackers would need to redo the work of all the nodes that confirmed the transaction and the work of the nodes in the next block to reverse a Bitcoin transaction. For the Bitcoin network, this process is highly unscalable.
Nodes waste a lot of energy competing to solve a puzzle, not to mention the 10 minutes they take to process transactions. This system needs to be faster and more efficient to cater to enterprise and global demand, and to address this problem, off-chain transactions were created.
Informed Decision-Making
Whether you're a curious Bitcoin investor wanting to grasp the factors influencing Bitcoin's price or an analyst eager to expand your knowledge, Bitcoin Magazine Pro aims to provide clarity and insights to support more informed decision-making in the Bitcoin space.
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What are Off-Chain Transactions
Off-chain transactions happen outside the blockchain and are later reconciled on-chain. These transactions are vital for scaling Bitcoin. Off-chain transactions address the slow speed and high fees of on-chain transactions, especially when conducting microtransactions. For example, waiting 10 minutes to pay for coffee needs to be faster.
Transaction fees charged for microtransactions were often higher than the amount transferred, which could be more sustainable. On-chain transactions can be useful for large transfers. Still, off-chain transactions utilize a layer two network on top of the blockchain to transfer value, information, or currency faster between parties. Examples of off-chain transactions include the Lightning Network for Bitcoin and sidechains.
How Off-Chain Transactions Work: The Lightning Network Example
The Lightning Network requires a multi-signature address to facilitate transactions between parties on a channel. This address allows multiple private keys to sign off on/approve transactions. When two parties use the Lightning Network, they use channels created between nodes and a transaction balance sheet.
Setting Up a Multi-Sig Wallet for Off-Chain Transactions
Both parties must deposit BTC in the multi-sig wallet; the sum of both deposits must be greater than 0 BTC. This initial deposit is published on the blockchain to ensure transparency. Both parties’ deposits are recorded on the balance sheet as each’s initial balance. The balance sheet is updated whenever a transaction is made, and both parties sign off on it with their private keys.
Processing Transactions and Updating the Balance Sheet
Every transaction creates an updated balance sheet both parties sign with their private keys. When either party chooses to opt out of the agreement at the end of the transaction, the most recent version of the balance sheet is sent to the blockchain, verified by miners, processed, and published. According to the final balance sheet’s values, the multi-sig address funds are disbursed to the parties.
Considerations of Off-Chain Transactions
This removes the need to process every blockchain micro-transaction, radically enhancing speed, scalability, and efficiency. It also reduces the transaction load nodes must process and helps mitigate the ledger’s growing size. Off-chain transactions do not automatically inherit the blockchain’s immutability, and steps must be taken to ensure the transactions’ authenticity.
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On-Chain vs. Off-Chain Bitcoin Transactions
Bitcoin relies on a blockchain to record and verify transactions. An on-chain Bitcoin transaction occurs when a user sends Bitcoin from one wallet address to another. Each transaction of this kind is recorded on the Bitcoin blockchain and publicly accessible.
The Benefits of On-Chain Bitcoin Transactions
Bitcoin's blockchain is the most secure database ever created. In 12 years, it has never been hacked, nor has Bitcoin been counterfeited or double-spended on the blockchain. The Bitcoin network is extremely reliable. Bitcoin has an impressive uptime of 99.986% since its creation and 100% uptime since 2013, meaning the Bitcoin network has been down and available since 2013. These levels are unmatched, not even by the largest tech companies in the world.
When transacting on-chain, you take advantage of this extreme security and reliability. Once your transaction is recorded on the blockchain, you can be confident that it cannot be altered or reverted by anyone. Such guarantees are impossible to find with any other monetary system.
The Drawbacks of On-Chain Bitcoin Transactions
The cost of transaction fees is expected to rise as demand to transact on the Bitcoin blockchain rises. Indeed, in recent months, Bitcoin transaction fees have been increasing. Transaction fees can be expensive for many users, especially those transacting in small amounts.
New Bitcoin transactions are confirmed on average every ten minutes, but confirmation can take 10 minutes to multiple hours. While this is still an enormous improvement over the legacy banking system, it may be inconvenient for some users. To mitigate the downsides of on-chain transactions, several protocols and services exist to enable off-chain transactions, which typically offer lower fees and quicker settlement times.
What are Off-Chain Bitcoin Transactions?
While there is only one Bitcoin blockchain, many off-chain protocols offer different benefits over on-chain transactions. Most off-chain protocols enable cheaper and faster transactions, but they also have drawbacks.
The Lightning Network: An Off-Chain Bitcoin Solution
The Lightning Network (LN) is a decentralized, peer-to-peer network that allows users to transfer bitcoin off-chain instantaneously with practically no transaction fees. It is built on top of the Bitcoin network and is thus called a layer two solution.
The Lightning Network enables two parties to lock up Bitcoin in a multi-sig address using an on-chain transaction called a funding transaction. The parties can repeatedly adjust the balances within that address using an arbitrary number of off-chain transactions. These transactions are instant and free. When the two parties are finished transacting, they can settle their balances using another on-chain transaction. The Lightning Network allows a potentially infinite number of transactions to be compressed into two on-chain transactions, drastically reducing the transaction fees and wait times.
The Liquid Network: Another Off-Chain Bitcoin Solution
The Liquid Network is a sidechain protocol built on the Bitcoin blockchain. The Blockstream corporation created it and operates on a separate blockchain. Liquid offers faster settlement than Bitcoin’s blockchain, as block reorganizations greater than two blocks are disallowed, and new blocks are produced every minute. Liquid also enables confidential transactions, which do not reveal the amount being sent, a feature currently unavailable on Bitcoin’s blockchain.
How Liquid Network Facilitates Faster Bitcoin Transactions Through Pegging Mechanisms
Liquid allows users to send Bitcoin (BTC) to a multi-signature address on the Bitcoin blockchain. This transaction is called a peg-in transaction. After pegging in bitcoin, the Liquid Network will issue an equivalent amount of Liquid bitcoin (L-BTC) to the user on the Liquid blockchain.
L-BTC is an entirely separate token representing a claim to real bitcoin, much like paper currency used to represent a gold claim. Once a user has L-BTC, they can transact rapidly and cheaply using the Liquid blockchain. When they are finished transacting, they can redeem their L-BTC for real Bitcoin using a peg-out transaction. Unlike Bitcoin’s blockchain, Liquid is not trustless and decentralized; a federation of parties governs it. The large number of parties should make the Liquid Network resistant to corruption, but the trust model is less secure than Bitcoin’s.
What is Fedimint?
Fedimint is an open-source protocol that runs alongside a bitcoin node and provides operators and users a Chaumian eCash mint with Lightning connectivity. In this protocol, users’ funds are taken care by multiple guardians and federated because no single custodian controls all funds. Users could deposit funds into a federation using on-chain or Lightning and then transact privately using eCash notes.
Since the protocol is directly compatible with Lightning, users could even pay Lightning invoices with eCash for nearly perfect privacy. Fedimints are based on second-party custody models; essentially, users place their trust in their families, friends, and community. The transaction signing scheme is similar to multisig in that multiple guardians would need to be compromised for a loss of funds. This model allows users to achieve better privacy and security by socially sanctioning community members in case of a trust violation.
Custodial Services: An Off-Chain Bitcoin Solution
Most brokerages and exchanges, such as River, also function as off-chain Bitcoin platforms. After an initial on-chain transaction, you can trade your bitcoin any number of times. Instead of using the Bitcoin blockchain, your brokerage or exchange will simply record these transactions in their private ledger. At the end of your trading, you can withdraw your Bitcoin balance using another on-chain transaction.
Opening and closing on-chain transactions are similar to Lightning’s funding and closing transactions and Liquid’s peg-in and peg-out transactions. However, in the interim, while your bitcoin are held by the exchange, you do not have custody, nor do you control the private keys. In contrast to Lightning and Liquid, custodial platforms are fully trusted.
What are the Trade-Offs Between On-Chain and Off-Chain Bitcoin Transactions?
In the eyes of Bitcoin critics, one of Bitcoin’s weaknesses is its lack of scalability. Because each Bitcoin block can only hold a certain number of transactions, the blockchain will never satisfy users’ demand to transact in Bitcoin. There are no solutions; there are only trade-offs.
Thomas Sowell, A Conflict of Visions
Ideological Origins of Political Struggles Each off-chain platform offers users benefits but has drawbacks. The benefits of off-chain platforms are consistent across different solutions, such as cheaper fees and faster transactions.
The drawbacks vary between off-chain platforms. For example, the Lightning Network requires capital to be locked up, and the capacity of each payment channel constrains Lightning payments. The Liquid Network sacrifices some of Bitcoin’s trustlessness and requires 100 confirmations for peg-in transactions. Custodial solutions completely sacrifice trustlessness, transparency, and decentralization. Each user should weigh these trade-offs when choosing how to use their bitcoin. Some use cases, such as long-term holding, are best suited for the Bitcoin blockchain, while small, frequent payments are likely best executed on an off-chain platform.
What is On-Chain Analysis, And Why Does It Matter?
On-chain analysis is the process of examining blockchain data to uncover actionable insights. Every transfer, regardless of size, leaves a trace on the blockchain. These transfers can be analyzed for information on current market conditions.
On-chain analysis can help investors gauge market sentiment, track whale activity, and make informed trading decisions. It is important to note that this is not the only instrument for predicting price action. The best investors will apply a mix of on-chain, technical, and fundamental analyses when developing their strategies.
Leveraging On-Chain Analysis to Predict Market Movements and Whale Behavior
By examining blockchain data, on-chain analysis can help explain why certain market players, including institutions, buy or sell particular assets. If whales deposit significant amounts of Bitcoin into centralized exchanges, it may indicate they intend to sell their holdings.
Conversely, if whales transfer Bitcoin into decentralized wallets, it could suggest they want to hold for the long term. Analyzing this data type can help investors make sound decisions before price action changes.
The Many Uses of On-Chain Analysis
On-chain analysis isn’t limited to a specific group of individuals. Anyone looking for insights into on-chain metrics can benefit from this data. Below are some of the primary use cases for on-chain analysis.
Smart Contract Analysis
Investors can use blockchain analytics to track whale wallets and identify what tokens these wallet owners sell. This tool also assists investors in identifying trading volumes, liquidity dynamics, and trends in decentralized markets.
Illicit Activities Investigation
While blockchain technology is praised for its security and potential to return power to investors and purchasers rather than a regulating body, it has also been exploited for criminal purposes. That being the case, government agencies can use blockchain analytics to investigate dirty money circulation, fraud, and terrorist financing on blockchain networks.
Signals to Look for When Analyzing On-Chain Data
On-chain analysis uses many metrics to predict possible price actions. Some of the primary signals to watch include the following:
Active Addresses
Active addresses show market trends.
Transaction Volume
This refers to the overall number of operations on a specific blockchain. It shows the level of activity and the demand for certain assets.
Supply Distribution
This metric discloses the level of asset decentralization and concentration.
Pay Close Attention
On-chain analysis necessitates interpretation.
There are instances where coins are transferred to a different exchange in hours. Because of this, you should use caution when concluding because some players like to make specific plays to trick on-chain analysts intentionally.
On-Chain Indicators for Market Action
Realized profits and losses (RPL) is an on-chain metric for floating gains and losses realized after selling an asset. Once you purchase a digital currency, you incur a profit or loss based on price movements. You establish your RPL by comparing the amount realized to the realized income. If the outcome is positive, you realize profits; if it turns negative, it signals a loss. By tracking RPL over time, you can gain insights into the behavior of long-term holders and their sentiment towards a given asset.
For example, it can help to identify buying and selling opportunities. If RPL is high, it may indicate that long-term holders are taking profits and may be more likely to sell, creating selling pressure. On the other hand, if RPL is low, it may indicate that long-term holders are holding onto their assets, which could indicate bullish sentiment and a potential opportunity to buy.
Supply in Profit or Loss: Understanding Market Behavior
Supply in profit is the number of coins in a blockchain that is currently in profit. The price at which they were last moved is less than their current price. Supply in loss is the number of coins in a blockchain currently lost. The price at which they were last moved is higher than their current price. You calculate supply in profit by establishing the number of coins last moved when the price was below the current price (the price has appreciated since the assets were last transferred).
During bull markets, most of the supply in circulation prints profits, while during bear markets, the supply in profits drops gradually to hit bottom at the end of each bear. When it reaches a price level where most investors profit, they may be more likely to sell, creating a potential resistance. Conversely, when it reaches a price level where many investors are at a loss, they may be more likely to hold or buy more, creating potential support.
Realized Capitalization: An Alternative to Market Cap
Realized capitalization is a variation of market capitalization that values each unspent transaction output (UTXO) based on its historical price change instead of its current price. Consequently, instead of the average market value of assets, realized capitalization echoes the realized value of the available coins in a blockchain.
The concept behind realized capitalization was about establishing an on-chain metric that minimizes the impact of lost tokens and values tokens according to the latest state of an account chain. When tokens get lost, market capitalization doesn't account for them. Realized cap differs from the above approach by revaluing each last moved asset to its latest value. Therefore, if you spend an asset at a price higher than when you last transferred it, it revalues to a higher price and leaves a corresponding increase in the realized capitalization.
All Exchanges Reserve: Tracking Selling Pressure
The total amount of Bitcoin reserves held on all exchanges measures potential coins to sell on the market. The Exchange Reserve is a collective measure of potential coins ready to be sold on exchanges. An increase in the all exchanges reserve on-chain indicator highlights Bitcoin's growing power of sale. A decrease in reserve occurs when a large number of bitcoins flow out of all exchanges. The price is likely to go up due to a sell-side liquidity crunch.
Measuring the number of transactions these chains process on average relative to their maximum throughput can determine which chain is gaining dominance.
Bitcoin Analytics Tools
Bitcoin Magazine Pro offers comprehensive analytics tools to help investors and enthusiasts better understand Bitcoin through data. The platform provides a wide range of free, regularly updated Bitcoin charts, each accompanied by detailed explanations to make complex information accessible.
For those looking to know deeper, paid tiers offer features like:
- Chart alerts
- Exclusive indicators
- In-depth market reports
Informed Decision Making
Whether you're a curious Bitcoin investor wanting to grasp the factors influencing Bitcoin's price or an analyst eager to expand your knowledge, Bitcoin Magazine Pro aims to provide clarity and insights to support more informed decision-making in the Bitcoin space.
Save 30% on Bitcoin Magazine Pro's Bitcoin analysis tool today when you sign up for our annual plan!
Technical Analysis vs. On-Chain Analysis vs. Fundamental Analysis
Bitcoin indicators are analytical tools that help traders and investors make better decisions about buying, selling, and holding assets like Bitcoin. They use mathematical formulas to analyze price fluctuations and trading patterns. There are three main types of Bitcoin indicators:
- Fundamental analysis
- Technical analysis
- On-chain analysis
Fundamental Analysis: Digging Into Bitcoin’s True Value
Fundamental analysis examines Bitcoin's underlying value to assess whether it is a good investment. This type of analysis considers all the data that affect Bitcoin's value, including market capitalization, trading volume, the number of holders, Bitcoin’s utility, and the authenticity of the team behind it. This approach to investing can help you determine if an asset is overvalued or undervalued.
For example, Bitcoin has a maximum supply of 21 million coins, and roughly 19.3 million are already in circulation. This means only about 1.7 million bitcoins are left to be added to circulation, driving Bitcoin's scarcity. According to the laws of demand and supply, the more scarce an asset is, the more value it gains. These details are part of the fundamental analysis you can use to make a wise investment decision.
Technical Analysis: Predicting Bitcoin’s Future Price Movements
Technical analysis studies Bitcoin’s price movements and trading activity to forecast future market performance. This approach uses historical data, chart patterns, and technical indicators to identify opportunities in Bitcoin’s price action. Technical analysis can help investors decide on short, to medium-term trades that capitalize on Bitcoin’s volatility.
For example, the price movement of BTC from November 2020 to July 2021 revealed a head-and-shoulders pattern that signaled an upcoming trend reversal. The price of BTC fell from $50,000 to almost $35,000 when it broke below the neckline on May 15, 2021. To learn more about technical analysis, check out our articles on long-wick candles and higher highs.
On-Chain Analysis: Using Blockchain Data to Gauge Market Sentiment
On-chain analysis considers verified and recorded data on the blockchain to predict trends and gauge market sentiment. In other words, on-chain research involves monitoring how funds move on the blockchain to detect potential investment opportunities. This method is unique to since other asset classes don’t run on public ledgers.
You can conduct an on-chain analysis to determine why various market participants buy or sell a given asset. Through an on-chain analysis platform like Glassnode, you can view various BTC investors' activities. Analyzing on-chain data can show whether they are actively depositing assets to centralized exchanges (CEXs) or withdrawing them to decentralized wallets. A high inflow to CEXs suggests the chance that they will dump their holdings, while a high influx to decentralized wallets means they are planning to hold for some time. You can use this information to guide you in making a wise investment decision.
Top 13 On-Chain Analysis Tools in 2024
An on-chain analysis tool is a platform that offers charts and metrics to analyze. They use data science and machine learning methods to extract raw data and transform it into readable information. While the best on-chain analysis tools mostly offer all the categories of data introduced above, some are specialists.
On-chain analysis tools offer several advantages for those involved. They provide transparency by allowing users to analyze transactions and other activities independently. This is all based on the transparency offered by the blockchain. Beautiful, isn’t it? Thanks, Satoshi.
1. Bitcoin Magazine Pro
Bitcoin Magazine Pro offers comprehensive analytics tools to help investors and enthusiasts better understand Bitcoin through data. The platform provides a wide range of free, regularly updated Bitcoin charts, each accompanied by detailed explanations to make complex information accessible.
For those looking to know deeper, paid tiers offer features like:
- Chart alerts
- Exclusive indicators
- In-depth market reports
Informed Decision Making
Whether you're a curious Bitcoin investor wanting to grasp the factors influencing Bitcoin's price or an analyst eager to expand your knowledge, Bitcoin Magazine Pro aims to provide clarity and insights to support more informed decision-making in the Bitcoin space.
Save 30% on Bitcoin Magazine Pro's Bitcoin analysis tool today when you sign up for our annual plan!
2. Glassnode
Glassnode is among the most popular on-chain analysis tools, offering digital currency market insights through on-chain indicators. Established in 2018, Glassnode strives to simplify users' research processes and enrich their decision-making by providing them with market intelligence and related on-chain data.
Glassnode has multiple applications that provide revolutionary ways of staying ahead. Its live data presents numerous charts and dashboards with in-depth insights on:
- Wallet activity
- Balances
- Network growth
- Token supply
- Number of holders and many more
3. CryptoQuant
While mostly being known as one of the cheaper Glassnode alternatives, CQ is more than that. CryptoQuant is another leader in the on-chain analytics industry. While also offering institutional services, the CryptoQuant app is touted as the best on-chain analysis tool for individuals.
4. Dune Analytics
Dune is another popular on-chain analytics tool you should consider. Unlike other analytical tools that involve new scripts, you can query the Dune database to gather almost any on-chain information. Dune is known for querying the blockchain through simple SQL queries. Generally, the platform provides all the necessary tools to query, extract, and show high volumes of blockchain data.
5. Nansen
Unlike Glassnode and Dune, Nansen combines blockchain data with 250M+ labeled wallets to offer on-chain analytics. Though Nansen is ideal for professional investors looking for in-depth on-chain research, newbies can still use it to learn more about digital currencies.
6. Coin Metrics
Coin Metrics is a leading transparent and actionable market and network data provider. Another popular Glassnode alternative is that it offers a range of data feeds and on-chain analysis tools to help clients better understand and invest in Bitcoin.
7. Santiment
Santiment is a leading market intelligence platform. It provides:
- On-chain analytics
- Social media sentiment metrics
- Financial data
It offers a range of features to help traders, investors, and researchers gain insights into the market.
8. The Block
The Block is a comprehensive platform that provides insights, data, and analysis. It offers data related to spot markets, futures, ETFs, indices, and more. While The Block is more than an on-chain analysis tool, we are here for their software.
9. Coinglass
Coinglass is another top chain analysis software. It provides on-chain data analytics and futures market metrics. Coinglass has much to offer whether you are a:
- Professional trader
- Asset manager
- On-chain analyst
10. Messari
Messari is a comprehensive chain analysis software. It offers real-time monitoring, alerts, research reports, and advanced screening features. While not a specific on-chain analysis tool, investors widely use it.
11. Chainalysis
Chainalysis is an on-chain analysis tool that detects dirty flows. The platform aims to prevent money laundering, so it’s completely different from all the other blockchain analysis tools we’ve reviewed.
12. Crystal Intelligence
Crystal Intelligence is a Chainalysis alternative and competitor. It is a compliance and investigation platform with the same goal as Chainalysis: preventing crime. The solutions offered by Crystal Intelligence help government entities, track dirty flows and prevent money laundering.
13. PARSIQ
PARSIQ is a blockchain monitoring and automation platform. It provides a suite of tools and APIs for developers, businesses, and individuals. You can build decentralized applications and monitor blockchain activity. Of course, PARSIQ’s blockchain analysis tools are our focus in this article.
On-Chain Analysis Benefits
Trading Signals: Actionable Insights for Market Moves
On-chain data reveals metrics like:
- Transaction volume
- Wallet balances
- Network activity
That helps traders identify potential buy or sell opportunities based on historical patterns. Rising transaction volume and active addresses can signal a bullish price move while declining numbers indicate an impending downturn.
Market Timing: Perfecting Entry and Exit Points
On-chain analysis can help traders better time their entry and exit points in the market. For instance, monitoring the MVRV-Z score, Pi-Cycle ratio, or transaction volume can help traders identify overbought or oversold conditions, improving the timing of their trades.
Risk Management: Protecting Your Portfolio
Data on wallet movements and large transactions can help traders assess the market’s overall sentiment and potential price volatility, allowing for more effective risk mitigation strategies. For example, if a large wallet associated with an exchange suddenly transfers a large sum to another address, this could indicate an upcoming sell-off that may impact the market. By investigating on-chain data, traders can better protect their portfolios against impending price drops.
Long-Term Investment Insights: Finding Projects with Potential
For long-term investors, on-chain analysis can provide insights into a digital currencies health and adoption. Metrics like active addresses and network growth can help investors see which projects hold long-term potential. For example, if an asset consistently grows its user base, this may indicate real-world utility and adoption that could support future price increases.
Identifying Accumulation or Distribution Phases: Where Is the Market Headed?
Recognizing accumulation and distribution patterns can help traders and investors decide whether the market is in an accumulation phase (potentially indicating future price appreciation) or a distribution phase (potentially signaling a price decline).
Confirmation of Fundamentals: Validating Claims of Blockchain Projects
If a blockchain-based project claims to have a high user activity level but on-chain analysis shows low transaction volume, it may raise questions about its legitimacy. Investors can use on-chain data to help confirm or deny the fundamentals of projects before making investment decisions.
Technical Analysis Validation: Strengthening Trading Strategies
On-chain analysis can complement traditional technical analysis by providing fundamental data to validate technical indicators. This synergy between technical and on-chain analysis can enhance the accuracy of trading decisions.
Trend Confirmation: Validating Price Movements
On-chain analysis can help traders confirm or challenge the trends they observe in price charts. If on-chain data aligns with price movements, it can give traders more confidence in their chosen trading strategies.
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