Logo Crypticorn

Crypticorn

How to Perform On-Chain Analysis For Crypto Price Prediction

On-chain analysis is one of the three horsemen of crypto price prediction: Fundamental, technical, and on-chain analysis. It can provide insights into a crypto asset’s blockchain that may significantly influence its market value. 

How to Perform On Chain Analysis For Crypto Price Prediction - Header Picture
How to Perform On Chain Analysis For Crypto Price Prediction – Header Picture

So, in this article, we’ll discuss on-chain analysis, essential metrics to consider, and how to combine them with other analytics techniques. Without further ado, let’s get to it.


What is On-Chain Analysis?

What is On Chain Analysis - AI generated
What is On Chain Analysis – AI generated

On-chain analysis involves looking at publicly available data about transactions on a blockchain. It is also called blockchain analytics, and it entails investigating metrics such as trading activity, wallet holdings, and trading volume over time to determine market sentiment at a specific period.

On-chain analysis in crypto is very similar to fundamental analysis. However, it involves a more quantitative approach as the analytics often include numbers and figures. 

With this kind of analysis, the ultimate goal is to understand why traders and investors are making specific moves, which can help you profit from trading activity. Not all on-chain data is readily available, and you’ll sometimes have to use a third-party data scraper to decipher some of them.

In addition, data from on-chain analysis can be combined with other analysis methods to make informed trading decisions. But first, let’s discuss the most important parameters to evaluate during this process.


Essential Metrics to consider for on-chain analysis

The following are some of the most critical on-chain crypto data to measure for crypto price prediction.

  • Transaction volume
  • Active addresses
  • Wallet balances
  • Transaction count
  • Network hash rate
  • Realized cap
  • Network value to transaction (NVT)

Transaction Volume

Transaction volume refers to the total value of transactions on a blockchain over a specific period. Typically, high transaction volumes mean increased activity. And even though it’s not always a great indicator of the direction of price movement, it tells you just how strong trading activity is in that period. 

In addition, high transaction volume often indicates increased network activity and adoption.

Active addresses

The number of active addresses on a blockchain is a good indicator of how well-adopted a crypto project is. It is measured as the number of unique addresses involved in transactions on the blockchain within a given timeframe. 

Usually, steadily increasing active addresses indicate healthy adoption rates and possibly increased token value in the long run.

Wallet balances

Although it can be challenging to access this kind of on-chain crypto data sometimes, wallet balances offer you insights into the distribution of liquidity on a network. It also tells you the number of whales, investors, small holders, and traders, enabling you to decipher whether a project is legit or a pump-and-dump scheme.

Transaction count

Transaction count refers to the cumulative number of transactions occurring on a blockchain over time. Higher transaction counts are usually indicative of healthy network activity. However, high transaction counts with low or contradictory trading volumes can be sketchy. So, keep an eye out for these two indicators.

Network hash rate

Network hash rate is the total computational power dedicated to validating transactions and securing a blockchain network. It measures the speed at which miners (or validators) collectively solve complex mathematical puzzles, known as hash functions, to add new blocks of transactions to the blockchain. 

An Example of the Total Hash Rate (TH/s) by Blockchain.com
An Example of the Total Hash Rate (TH/s) by Blockchain.com

A higher hash rate indicates greater computational power and network security, as it becomes more difficult for malicious actors to manipulate the blockchain through cyberattacks. Furthermore, network hash rate is typically measured in hashes per second (H/s), kilohashes per second (KH/s), megahashes per second (MH/s), gigahashes per second (GH/s), or terahashes per second (TH/s), depending on the scale of the network.

Realized cap

Realized cap is short for realized capitalization. It’s a metric used to assess the value of a network based on the market value of coins exactly when they last moved on the blockchain. Unlike traditional market cap, which calculates the value of all coins based on their current market price, realized cap accounts for the value of coins that have been transacted.

To calculate the realized cap, you assign each coin in circulation a value equal to the last transacted price. You then add them up to determine the total realized cap of the cryptocurrency network. 

The main advantage of realized cap is that it provides a more accurate representation of the value of a network’s coins that are actively being used, as opposed to coins that may be held in dormant or inactive wallets.

Network value to transaction (NVT)

Network value to transaction (NVT) by glassnode
Network value to transaction (NVT) by glassnode

Last but certainly not least is network value to transactions (NVT). It is a ratio used to assess the valuation of a blockchain relative to its transaction activity. To calculate NVT, you divide the market cap of a cryptocurrency by the total value of transactions conducted on its blockchain over a certain period, typically on a daily or monthly basis. 

That is, NVT = Market cap/Transaction volume.

High NVT values tend to indicate that the blockchain is overvalued relative to the level of transaction activity, suggesting that investors are assigning a high value to the network without corresponding levels of on-chain usage. It could be a pump-and-dump scheme.

On the other hand, a low NVT ratio may indicate that the network is undervalued relative to its transaction activity, suggesting potential investment opportunities.


Combining on-chain analysis with other analytics techniques for crypto price prediction

On its own, crypto on-chain analysis is a potent analysis technique. But, combining it with data from the other analytics methods is even more helpful. 

For instance, some on-chain indicators measure the strength of price movements but not direction. When you combine them with technical indicators like the MACD, you have a pretty good idea of whether the market is experiencing bullishness or bearishness.

When you combine all three analysis techniques, you can make better-informed trading decisions, especially with entry and exit positions and risk management.

With tools like the Crypticorn Price Prediction Dashboard, you can combine fundamental, technical, and on-chain analysis all at once without the hassle of manually combing for data.

Unlock Your Trading Potential: Enhance Your Strategy with AI-Driven Crypto Price Forecasts
Unlock Your Trading Potential: Enhance Your Strategy with AI-Driven Crypto Price Forecasts

Conclusion

On-chain analysis is an essential aspect of crypto price prediction. In this article, we’ve covered the main metrics you should evaluate and even an excellent tool for stress-free analytics.

Hopefully, with the info we’ve provided, you can combine this analytics method with your technical analysis strategy to make better-informed trading decisions.


FAQ

What does on-chain mean in crypto?

In crypto, “on-chain” refers to transactions and data recorded directly on a blockchain, providing transparent and publicly accessible records of trading activity.

What are on-chain indicators?

On-chain indicators are metrics used to check activity on a particular blockchain network. These indicators, such as transaction count, realized cap, active addresses, and transaction volume, provide helpful information regarding the worth of a blockchain project.

What is on-chain balance?

On-chain balance is the number of crypto tokens and coins held in a specific wallet address, recorded directly on the blockchain ledger. It could be a combination of crypto assets such as ETH, BTC, and even NFTs, so it’s usually cumulatively measured in USD.

Leave a Reply

Your email address will not be published. Required fields are marked *

Read Next

Liquidity Management and AI: How Machine Learning Technology Aids Asset Distribution and Accessibility in DeFi

Top 5 Sniper Bots for Profitable Decentralized AI Trading

What Are Crypto Sniper Bots? The best Sniper bot for 100x!

Risks Associated with Crypto Price Prediction and How To Navigate Them

Introduction to Decentralized AI Trading: Exploring Artificial Intelligence and its Applications in DeFi

Top 10 Crypto Discord Trading Signal Servers

Token Sale