What is On-Chain Analysis?

What is On-Chain Analysis?

One of the advantages of blockchain is its transparency. Blockchain uses distributed ledger technology, which functions to broadcast every complete record of transactions to a group of operators or node managers. In this case, to maximize the profits from investing in cryptocurrency assets, you also need to understand on-chain analysis. Keep in mind that on-chain analysis is an important aspect of cryptocurrency investing.

Traders who use analysis correctly can earn significant advantages compared to ordinary traders. So what is on-chain analysis? Check out the explanation in this article.

What is On-Chain Analysis?

This analysis aims to examine every blockchain transaction activity. The aim is to understand how investors react to market forces/events as well as determine emerging trends/investor sentiment.

Simply put, on-chain analysis is observing how money moves on the blockchain to help spot potential opportunities. On-chain analysis is very popular among investors because it provides a lot of data.

What Crypto Traders Can Learn From On-Chain Analysis

Crypto traders can learn various things, such as wallet activity. Wallet activity tracking shows how many agents are involved on a given blockchain. It is very helpful to understand layer 1 of the blockchain, which is also known as the implementation layer.

Every transaction on the layer 1 blockchain requires a native token to buy block space. Therefore, the more transactions and addresses that are active daily, the more economic activity there is, due to greater demand for native tokens. This simple metric can help increase the price of those layer 1 tokens.


One common question that often arises in on-chain analysis is about liquidity. By looking at information such as Total Volume Locked (TVL), we can see which decentralized asset pairs and applications have the best liquidity. This enables these decentralized asset pairs and applications to have a more stable or popular value.

Smart Money

Another thing that can be learned from this analysis is smart money tracking. A wallet receives a smart money label after demonstrating intelligence in trading/investing consistently. This label can also be given due to the wallet’s relationship with an institution or having large funds.

Keeping an eye on the movements of this type of wallet can pay dividends for people who understand the crypto market better. Imitation is an important element in the development of skills that allow investors to observe and copy their every move.

Capital Flow

Another essential part of this analysis is following the money flow. The key is that where money flows, profits often follow.

What Tools are Useful for On-Chain Analysis?

To aid analysis, several useful tools are available, including:

  1. Block Explorers: These tools allow users to examine transaction and block data on a particular blockchain. Some popular block explorers are Etherscan for Ethereum, Blockchain.info for Bitcoin, and BscScan for Binance Smart Chain.
  2. Crypto Analytics Platform: This platform allows users to analyze on-chain data in greater detail and depth, including trading volume, network density, and account activity. Examples of these platforms are Glassnode, CoinMetrics, and CryptoQuant.
  3. Blockchain analytics tool: This tool can help users check for suspicious transactions or illegal activity on the blockchain. Some popular blockchain analytics tools are Chainalysis, Elliptic, and CipherTrace.
  4. Network monitors: This tool allows users to monitor blockchain networks in real-time, track network performance, and view network statistics. Examples include Bitnodes for Bitcoin, Etherchain for Ethereum, and Binance Smart Chain Explorer for Binance Smart Chain.
  5. Data aggregator: This platform collects data from various sources and presents it in an easy-to-understand form. Examples are CoinGecko, CoinMarketCap, and Messari.

Using the above tools, users can perform better and more in-depth on-chain analysis, thereby making better investment decisions and understanding the blockchain ecosystem better.

Are There Limitations to On-Chain Analytics?

This analysis serves the same function as other methodological approaches. The more data available, the more substantial the conclusions will be. However, metrics on on-chain analysis that are currently applied may be discarded in the future as new data is added.

Another limitation of core data is related to the time window. This analysis is often not suitable for day traders who prefer trend outlines over scalping techniques.

The Future of On-Chain Analytics?

It is believed that on-chain analysis will become more reliable as the data set grows in the future. Simply put, the more data available, the more accurate the analysis will be. This is because data sets are becoming more accessible as technology develops. Traders will also become more proficient in understanding on-chain analysis.

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