‘On Chain’ Analysis

‘On Chain’ Analysis

“Nothing is more terrible than activity without insight.”  (Thomas Carlyle), the 19th-century Scottish essayist and historian. This statement certainly predates the internet but it could not have more relevance and meaning than with todays Crypto Market.  This phrase helps highlight the need to gain insight before taking action. The best way to do this is through ‘On Chain’ Analysis.

One critical form of insight in the Crypto Market is ‘On Chain’ Analysis (OCA). On-chain analysis, is a field of study examining the fundamentals, utility, and transaction activity of cryptocurrency and blockchain data. Analyzing publicly available blockchain data gives insights into what’s happening in the crypto world. In this blog post, we will explain what on-chain analysis is and how to use it to make informed decisions about your investments.

Let’s start by understanding the main types of ‘On Chain’ Analysis that you can do…

Different types of On Chain Analysis

1. Transaction Flow Analysis: This is a way to track the activity of certain public addresses on the blockchain. By tracking transactions, it is possible to identify patterns and trends in the data that can help you understand what wallet address is sending and receiving funds. This can provide valuable information about the direction of the market. As mentioned in previous blogs, one great aspect of the block chain is the transparency.

Visibility and transparency

Every transaction will be visible for everybody to view via ‘On Chain’ Analysis at any time.  This makes it a public ledger. Transaction flow analysis tracks cryptocurrency movements, identifies trends, and detects suspicious activities. To do a transaction flow analysis,  you have to visit a block explorer and search for the address you want to track.

Block explorers

The main block explorer websites that you can visit are: blockchain.com, etherscan.io and intotheblock.com. When you visit a block explorer site to start your transaction flow analysis, you will have a menu of options that will allow you to select different ledger activities. These activities include; deposits, withdrawals, and transfers. Data presentation usually comes in an easy-to-follow chart format displaying transaction amounts, dates, and times clearly. Here you can start gaining great insight on the cryptocurrencies flows.

2. Network Analysis:

This type of analysis involves looking at the interactions between addresses on the blockchain to understand how they interact with each other. By doing Network analysis, you can identify clusters of addresses that could be influencing the market price or volume in some way. An example good network analysis could be… tracking the interactions between different exchanges and wallets in order to assess their influence on the overall market. Once again, a block explorer can be used for network analysis. By searching for an address or transaction hash, you can view all the transactions that have taken place involving it. This will give you an idea of its connections and how they could be affecting the market.

Below are a couple of crypto tools to consider in terms of features and ease of use for your analysis.

1. TradingView – Crypto Tool for Charting and Technical Analysis
2. Glassnode – Crypto Tool for On-Chain Analytics

By understanding the structure of the network, you can get a better idea of what’s happening in the market. You can use graph visualization software to visualize and analyze the data stored on the blockchain to conduct network analysis. Popular software used for this type of analysis include Sankey Visualizer and NodeXL.

3. Market Analysis:

This type of analysis involves looking at the market data and using it to identify trends in prices, volume, liquidity and other key metrics. By understanding how the market responds to certain events or news, you can gain valuable insights into what’s happening in the markets. Popular tools used for this type of analysis include CoinMetrics and TradingView.

4. Market Structure Analysis:

This type of analysis looks at the overall structure of the crypto market, including trading volume and pricing. By understanding which exchanges are driving the most significant trading volumes and which tokens have seen the highest price spikes, it’s possible to determine what is going on in the market. Popular tools used for this type of analysis include CoinGecko and CoinMarketCap.

By using On-Chain Analysis, Network Analysis, Market Analysis and Market Structure Analysis, it is possible to gain tremendous insight into what is happening in the crypto market. This can be used to inform investment decisions, spot trends and identify opportunities. By taking the time to understand these four forms of analysis, you can gain a great deal of knowledge about the crypto market and how it works.

As with all things that are new to you, don’t expect to be an expert straight away. Give yourself enough time to learn about how to use the different types of analysis and the software and apps that support it. Start by getting the basics right and then build up your technical skills over time.

Would you like to join our community to share and discuss your research, views, and experiences before investing in crypto? As a new investor, it’s a great way to gain insights from others who have walked the path before you. Sign up today and join our Crypto College Community to benefit.

Good luck and see you back here again soon!

Jack

 

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