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What is On Chain Analysis for Crypto trading?

What is On Chain Analysis and why is it important for cryptocurrency trading. How to profit from trading with on-chain analysis with AI?

What is On Chain Analysis?

On chain analysis is a method of analyzing cryptocurrency transactions and activities that take place on a blockchain network. Unlike off-chain analysis, which focuses on external factors such as media coverage and market sentiment, on-chain analysis focuses solely on the data that is recorded on the blockchain. By examining the underlying data on the blockchain, one can gain valuable insights into the behavior and activity of users on the network.

on chain analysis for crypto trading
on chain analysis for crypto trading

This type of analysis is commonly used in the cryptocurrency industry to track various metrics and KPIs (Key Performance Indicators) such as the number and value of transactions, the number of unique addresses holding a specific token, and the distribution of token holdings among those addresses. This information can be used for market analysis, investment research, and tracking the adoption and usage of specific cryptocurrencies.

Example for On Chain Analysis

General

For example, a significant increase in the number of transactions on a blockchain network can indicate increased usage and adoption of the underlying cryptocurrency. Similarly, a concentration of token holdings among a few addresses may indicate centralization, which could raise concerns about the decentralization of the network.

On Chain Analysis for Crypto Trading

Many cryptocurrencies offer some kind of staking with a lock-up period. A period the staked tokens can’t be traded and hence are locked on the blockchain. From time to time there those periods end and a huge number of tokens together with a reward is released to there holder. This means the number of available tokens increase which could result in a dump of the price when the now free coins are sold. As you can see this influences the price, sometimes this events are already priced in sometimes it decreases the price. When trading cryptocurrencies you should keep this in mind. Lukcily, this doesn’t happen very often.

A good example was ETH (Ethereum) merge in 2022. When the upgrade/merge was finished investors got their staked ETH back over time. They didn’t unlock all staked ETH at once to pervent such a dump of the ETH price which could result in panic on the market. Only with on chain analysis you can check if those tokens are being moved to be sold. This is the reason you should check out on chain analysis.

Conclusion

In short, on chain analysis is an important tool for understanding the underlying health and growth of cryptocurrency networks. It provides valuable insights into the behavior and activity of users, which can help investors, traders, and researchers make informed decisions. At crypticorn we do the same, we will check the on-chain data to make better predictions of the cryptocurrency prices. Check it our automated investing where we use this type of data analysis for our advantage. Follow us for more information about this topics.

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