CryptoTradingSite.com is a crypto-focused blog that offers quick and easy guides for people who would like to get ahead in the world of cryptocurrency trading. If you are a beginner or intermediate trader, then this tutorial will show you how you can get ahead faster than your competition by getting on-chain analysis.
Predicting the future is impossible, but if you want to get ahead in the crypto space, you’ve got to be able to identify trends in the market that might lead to success. That’s where on-chain analysis comes in. It’s a method for analyzing the behavior of blockchain tokens over time. With on-chain analysis, you can see if a coin is trending upwards or downwards based on data from the blockchain. Movements like this can be used to create buy and sell signals – so, the more up-trending a coin is, the more likely it is that it is going to continue to go up.
In this in-depth guide, we cover cryptocurrency blockchain analysis, the top 5 tools, the top 3 analysts, and more. Get it over with.
The assets developing in the blockchain ecosystem are in no way comparable to traditional assets such as stocks, bonds, real estate and other cash equivalents. Therefore, the same analytical methods used to understand changes in market behavior cannot be applied to them. We need a new form of analysis that condenses public blockchain information into unique insights to improve trading strategies and position management.
With the advent of intra-chain analytics, we can extract massive amounts of data from the public ledger of any asset. Although the sample size is small, we can record every action in the chain in history. Blockchain data collection is paramount to analyze market sentiment and investor behavior. Whether you are an experienced cryptocurrency trader or not, you need simplified data to identify undervalued/overvalued coins.
In this article, we’re going to look at everything about channel analytics, and help you with some of the best tools and channel analysts you can follow right now. Let’s get started.
- 1 What is a supply chain analysis?
- 2 History of channel analysis
- 3 The most significant chain measurements you should use
- 4 Market capitalisation
- 5 Market phases and cyclical lows
- 6 Relationship between market value and realised value
- 7 SOPR
- 8 Net unrealised gain/loss (NUAL)
- 9 Puel Multipl
- 10 Stable part retention ratio (SSR)
- 11 Network growth
- 12 Correlation with bitcoin
- 13 Top 5 tools for chains in 2021
- 14 Three channel analysts you should follow on Twitter
- 15 Debriefing
- 16 You have logged in successfully!
What is a supply chain analysis?
It is a unique analysis that takes into account the asset register and the unchanging record of market dynamics to create a macro picture of the cryptocurrency market. Channel analysts use this radically transparent information to assess the dynamics of supply and demand, people’s behavior, buying/selling patterns and mining activity.
With perfect memory for every transaction, process, and timestamp, we can truly build a promising perspective for understanding this free market. You don’t need to be a data science or coding expert to perform blockchain analysis – you just need to know the basics of the crypto-currency network and understand how participants interact with it.
History of channel analysis
Most advanced internal instruments are only three or four years old, but some of the measurement methods used today date back to 2011. We saw a bitcoin valuation metric that showed the age of bitcoin addresses, which helped us understand when the coins were destroyed. In 2017, we saw Chris Burniske and Jack Tatar develop one of the most popular metrics, called the network value to transaction (NVT) ratio.
With the help of NVT ratio, we can accurately determine the utility of a cryptocurrency and it also helps us to know the utility of transactions of a blockchain.
In a sense, we often think of the NVT ratio as a P/E ratio associated with stocks and it can be applied in a similar way to find value-added stocks/coins. This particular metric has been repeatedly tweaked to make it even more accurate. Take the Signal Network Value to Transactions (NVTS), a measure composed of a 9-day moving average.
Coinmetrics, one of the best blockchain tools, has also made several improvements to this metric, and the most recent change is that they have used a free float to improve the ratio.
There are so many metrics that can be used to build different perspectives on the market, and most of them are based on the concept of UTXOs (Unspent Transaction Outputs). However, we find it difficult to formulate metrics for Ethereum and ERC-20 tokens because the account models for these networks are difficult to track.
While much progress has been made in the on-chain community, little has remained the same. Blockchain archaeology is still at a very early stage. We have a small number of specialist roles who can come up with original ideas and concepts, analyse micro data and turn it into macro figures.
The most significant chain measurements you should use
Every channel analyst is not subject to any rule or framework. Everyone uses different in-chain metrics to predict market movements, but almost all crypto-currency traders use a few leading indicators. Here we provide the key internal indicators that give a broader view of the market:
The market capitalization of an asset determines the total value of its network and also helps us understand other aspects, such as. B. – Assumption, market size and risk. Although this is not a direct correlation, it is used to determine various properties of the network. The total value of the network is simply measured by multiplying the price of the asset by the total outstanding supply.
This is another iteration of the original market capitalization measure, as exits from the market are valued only at the price at which they were last traded. The current value of the document is not taken into account. The implemented market capitalization removes all inactive documents in the network. It also affects the profitability of a particular chain. If the dormant coins were issued, they would be revalued at their current market value, which would significantly increase the realised limit.
Market phases and cyclical lows
Realized capital is used in several cases to understand market phases and predict accumulation periods. Here we have highlighted three market phases that you need to be aware of, based on the capital data that has been realised:
- Bull market. Everything is simple here: When the realized capital continues to grow, the market is called a bull market. Technically, this means that parts purchased at prices much lower than their current value are consumed.
- Bear market – Similarly, when the realized capital is constantly falling, the market is called a bear market. This usually happens when newcomers enter the market by buying parts at off-chain exchanges.
- Accumulation phases – Long term holders/smart investors deploy as many coins as they can during the accumulation phases, which ultimately serves as support and shows the upward trend of capital realized.
When the market value falls below the realized value, we see the bottom of the cycle. In 2011 and 2013, we saw the realized peak coincide with the lower limit of a declining market. In this case, realized capital acted as resistance and support during market lows and accumulation periods.
Relationship between market value and realised value
The MVRV coefficient is a simple metric used to identify market peaks and troughs. The ratio of market value to realized value gives us an indication of when the price is overvalued and when it is undervalued.
Part of the evaluation of the plant is done using the MVRV-Z indicator, which is calculated as follows.
MVRV-Z Score = Market Capitalization – Realized Capitalization
Other advanced metrics generated after using the original MVRV coefficient are LTH-MVRH and STH-MVRV. These parameters allow us to assess the behavior of long-term investors versus short-term investors.
One of the most widely used measures providing data on macro-market sentiment and profitability over a given period is the SOPR. The ratio is formed by taking the value of coins that were valued and sold at the time UTXO was created. The SOPR is essential to any intra-chain analysis because it allows us to understand the daily, hourly behavior of the market.
Here are some trends and frameworks to keep in mind when using SOPR:
- When the OPR is greater than 1, market participants make a profit (on average), indicating that they sell for more than they paid.
- When the OISD is less than 1, market participants suffer losses (on average), indicating that they are selling at a lower price than they paid.
- When the SOPR reaches the exact value 1- Sell the parts at the equilibrium price (average).
- The SOPR continues to rise – meaning that there are now assets outstanding that represent an illiquid supply.
- The SOPR continues to fall – this means that coins that are making profits are not selling or market participants are taking losses.
Net unrealised gain/loss (NUAL)
NUPL is used to determine the status of the network. By calculating the difference between the unrealized gains and losses, we can measure the profitability of the network. If the NUPL value is greater than zero, the network is in a gain state, and if the value is less than zero – in a loss state. If you are in the blue zone, you can take profits and get out, and you can come back if you are in the red zone.
There are other variants of this metric – Unrealized Loss, LTH-NUPL and STH-NUPL. They can be used to understand a particular market area of interest or to target a specific group of investors.
The Pewell multiplier is calculated by comparing the daily coin issuance to the 365-day moving average of the daily coin issuance. Many network analysts place great importance on this metric because it determines the profitability and viability of the miner.
profitability of mines
New miners sell their coins to cover ongoing operating costs, and existing miners neutralize this sales pressure by having a surplus of coins in their coffers. As a result, we see big money taking over the sales pressure of the small-scale miners.
As earnings increase, Puell’s multiple ratio will tend to increase and be slightly above its annual average. After reviewing the historical data, we concluded that values above 4.0 indicate market tops.
Determining market bottoms by estimating mining activity is done with the Pewell multiplier. It is extremely difficult for mining companies to make a profit and cover operating costs during a continued down market. Market conditions are forcing them to leave the network by turning off their devices. This is mainly done to reduce energy consumption. In the case of large mining communities, they will increase their share of the revenue and sell fewer parts. In the last few cycles we have seen a 50% drop in miners’ profitability, and at that point the Puell multiplier was less than 0.5. It’s now less than 1.0.
Stable part retention ratio (SSR)
Stablecoin’s supply ratio is used to estimate the purchasing power of BTC. When the SSR is low, more purchases are made. Simply put, it serves as a proxy to show the dynamics between BTC and USD.
Network growth is a simple measure to calculate, but it gives a broader picture of the market. It reflects the adoption of cryptocurrencies over time and helps identify which assets are gaining or losing popularity.
Correlation with bitcoin
We see this metric primarily on the indoor unit. The indicator’s correlation with BTC helps us evaluate different assets that are affected by fluctuations in the price of bitcoin. This metric shows us the statistical relationship between the two variables. If it is less than one, it is indirectly proportional to bitcoin. When the number is closer to one, we see a positive relationship. The correlation with BTC helps investors minimize risk. If the price of BTC falls sharply, we can take the necessary steps to mitigate the loss of associated assets.
Top 5 tools for chains in 2021
Now that you have a basic understanding of channel analysis and the metrics used to evaluate the market, you can begin testing the various channel tools that are now available. We’ve listed the top five networking tools below:
Glassnode is one of the best data collection and analysis platforms in the channel, with real-time data scaling and a range of advanced metrics across multiple assets. They have a weekly publication of Glass Node Insights that provides a qualitative and quantitative view of the market. They also have detailed reports on blockchains and popular digital assets – a good read to understand the markets with historical data. You can immediately create a free account and access a wide range of indicators. If you want to invest, there are two options: an advanced plan ($39) and a professional plan ($799).
Santiment is a unique on-chain tool that can be used by both traders and developers. They have a separate set of use cases and tutorials for traders, and in the case of developers they provide access to technical documentation on logic, algorithms and some other santime measures. The platform also offers several products to help traders analyze cryptocurrencies. Sansheets and SanAPI can be used for spreadsheet plugins and packet queries respectively. Surprisingly, Santiment has also made SAN tokens available to offset current pricing plans, and plans to add chase and burn capabilities.
Coinmetrics is one of the most robust on-chain platforms for data and analytics. It was founded in 2017 as an open-source project with the goal of bringing economic value to public blockchains. To support their goal and vision, they now have many products and services to help people make informed decisions about crypto investments. Network data, market data, indices and risk management are the four main services offered by Coinmetrics. They also have a mobile app for easy tracking of crypto currency data and prices.
Cryptoquant tracks Bitcoin, Ethereum, Stablecoin and altcoins in general, and provides an overview of the state of the network through various metrics such as exchange flows, miner flows, bank flows, network data and market data. You can choose from four formulas: Basic, Advanced, Professional and Premium. The main difference between these plans is the warnings to users. Traders can set multiple alarms for each parameter and are notified when the set point is exceeded or not reached. In the free version we have access to all indicators, but without custom alerts or exclusive features.
Using data science and artificial intelligence, intotheblock creates accurate reports and provides analytical insights into the cryptocurrency market. In addition to blockchain analysis tools, it also helps users with directional price forecasts, challenge market data, and market sentiment analysis. The application schema is easy to use and any new cryptocurrency investor can navigate through the various financial and network metrics.
Three channel analysts you should follow on Twitter
Willie Wu is one of the best at mining blockchain investment signals. In 2016, he started working as a blockchain analyst and became passionate about the Bitcoin network from a technology perspective. He currently writes predictions for his paying subscribers every two or three weeks. Willie Wu has a cum laude engineering degree, and his 20 years of experience as a technology entrepreneur make him an authority on on-chain.
One of the most active on-chain analysts on Twitter is Checkmate, which partners with Glass Node to produce weekly publications and newsletters. His masterclass offers everything you need to know about blockchain analytics, and the best part is that you get to be part of an ever-growing community of similar crypto-enthusiasts.
Will Clemente, 19, a finance student at East Carolina University, provides insight into various supply chain analyses. He works with Anthony Pompliano and they discuss the state of the market each week on his YouTube channel. Will writes for over 27,000 investors and is very active in his newsletters. It mainly uses Glassnode for analysis and helps new investors to get an overview of what is happening on a daily and weekly basis.
The future of finance will be based on blockchain, so it’s here to stay and help crypto traders around the world better understand the market. The channel is still in its infancy, and we could see many improvements in the coming years. The more historical data that is added and captured on the blockchain, the more people will use the blockchain metrics as an additional tool to validate transactions. Even if you are new to cryptocurrencies and blockchain analysis, it is advisable to use the above tools and check all the metrics. Once you understand the basics, you can go further, relate the different measures and form your own opinion about the market. This way, you will always have an edge over other players in the crypto-currency space.
Kartikeya Gutta, born and raised in India, is a cryptocurrency journalist and freelance writer for the website itsBlockchain. It covers various aspects of the industry through in-depth analysis and research. His passion for blockchain and the crypto-ecosystem is largely because he believes it can truly change the world and help millions of people.
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