On-chain metrics

Understanding On-Chain Metrics for Cryptocurrency Trading

Welcome to the world of cryptocurrency! If you're just starting out, you've likely heard about technical analysis and fundamental analysis. But there's another powerful tool available to traders: on-chain metrics. This guide will break down what on-chain metrics are, why they matter, and how you can start using them to improve your trading decisions.

What are On-Chain Metrics?

Think of a blockchain like a public record book for all transactions. Every transaction is recorded, permanent, and verifiable. *On-chain metrics* are pieces of data that we can pull directly from this blockchain record. Unlike price charts (which are *off-chain* data), on-chain metrics give us insight into what’s actually *happening* on the blockchain, rather than just how people *feel* about the price.

Essentially, it's looking at the raw data of the network to understand user behavior and network health. This can reveal opportunities or warn of potential risks before they show up on price charts.

Why are On-Chain Metrics Important?

Traditional financial markets rely heavily on company reports and economic indicators. In crypto, those equivalents are often less readily available or trustworthy. On-chain data provides a transparent and objective view of what’s happening with a particular cryptocurrency.

Here's why they're valuable:

• **Early Signals:** On-chain data can give early warnings about potential price movements.
• **Understanding Investor Behavior:** We can see where coins are moving, who’s holding them, and what they’re doing with them.
• **Network Health:** Metrics can tell us if a network is growing, stagnating, or facing problems.
• **Identifying Trends:** Spotting patterns in on-chain data can help you identify emerging trends.

Key On-Chain Metrics Explained

Let’s look at some of the most useful on-chain metrics for beginners:

• **Active Addresses:** This simply counts the number of unique addresses participating in transactions on the blockchain during a specific period. A rising number of active addresses generally indicates increasing network activity and potentially higher demand.
• **Transaction Count:** The total number of transactions occurring on the blockchain. Similar to active addresses, a higher transaction count can suggest growing usage.
• **Transaction Volume:** The total value of all transactions on the blockchain, usually measured in the native cryptocurrency (e.g., BTC or ETH). This tells you *how much* value is moving around.
• **Hodler Net Position Change:** This metric shows the net change in the amount of coins held by long-term holders (hodlers). A positive change suggests hodlers are accumulating, while a negative change suggests they are distributing. You can learn more about hodling here.
• **Exchange Net Position Change:** Tracks the net flow of coins into and out of cryptocurrency exchanges. Coins moving *onto* exchanges often suggest selling pressure, while coins moving *off* exchanges suggest accumulation.
• **Supply Held by Top Holders:** This shows the percentage of the total supply held by the largest addresses. A high concentration of supply in a few hands can create risks.
• **Network Hashrate:** (For Proof-of-Work coins like Bitcoin) Measures the computational power securing the network. A higher hashrate generally indicates a more secure network.
• **MVRV Ratio:** Market Value to Realized Value. This ratio compares the market capitalization of an asset to the value of its coins based on when they were last moved. A value above 1 suggests the market is overvalued, while a value below 1 suggests undervaluation.
• **SOPR (Spent Output Profit Ratio):** Indicates whether coins moved on a given day were moved for a profit or a loss. A value above 1 suggests coins were moved for profit, indicating bullish sentiment.

Comparing On-Chain and Off-Chain Data

Here's a quick comparison to highlight the differences:

Metric Type	Data Source	What it Shows	Example
On-Chain	Blockchain Data	Actual network activity & holder behavior	Increase in active addresses suggests growing adoption
Off-Chain	Price Charts, News, Sentiment	Market perception & speculation	A positive news article causes a price spike

Practical Steps: How to Start Using On-Chain Metrics

1. **Choose a Data Provider:** Several websites and platforms offer on-chain data. Some popular options include:

   *   Glassnode (often requires a subscription for detailed data)
   *   Santiment (also subscription-based)
   *   IntoTheBlock (offers some free data)
   *   CoinMetrics (provides free and paid data)

2. **Start with Simple Metrics:** Don’t try to learn everything at once. Focus on a few key metrics like active addresses, transaction volume, and exchange net position change. 3. **Look for Divergences:** Pay attention when on-chain data *disagrees* with price action. For example, if the price is going up but exchange inflows are increasing, it could signal a potential correction. 4. **Combine with Other Analysis:** On-chain metrics are most powerful when used in conjunction with technical analysis and fundamental analysis. 5. **Practice & Observe:** Track metrics over time and see how they correlate with price movements. This will help you develop your intuition.

Example: Using Exchange Net Position Change

Let's say you’re looking at Bitcoin. You notice that the exchange net position change is consistently negative – meaning more BTC is flowing *off* exchanges than onto them. This suggests that people are moving their Bitcoin out of exchanges and into long-term storage (like crypto wallets). This could be a bullish signal, as it indicates decreasing selling pressure.

Resources for Further Learning

• Decentralized Finance (DeFi)
• Stablecoins
• Bitcoin
• Ethereum
• Altcoins
• Trading Bots
• Risk Management
• Candlestick Patterns
• Moving Averages
• Relative Strength Index (RSI)
• Fibonacci Retracements
• Consider using exchanges like Register now or Start trading to practice your strategies. You could also explore Join BingX or Open account for different trading options. For more advanced trading, check out BitMEX.

Disclaimer

Trading cryptocurrency carries significant risk. On-chain metrics are just one tool in your arsenal, and they are not foolproof. Always do your own research and only invest what you can afford to lose.

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