I’ve written a lot about various on-chain analytics firms’ tools in prior articles. But what is on-chain analysis? On-chain analytics peel back the layers of blockchain transactions to offer a view into wallet activities and token movements on the blockchain. This method of data scrutiny uses publicly accessible ledger information to decipher trends, track wallet health, and predict future movements. Essentially, it’s like having a crystal ball, if that crystal ball were made up of lines of code and endless spreadsheets of transaction data.
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Imagine this: if the stock market were all tokenized and on the blockchain, with on-chain analysis tools, anyone could see live what insiders, investors, whales, and dark pools were doing. No more waiting for SEC filings to let retail traders and investors know what the bigwigs have already done.
On-Chain Analysis Applied to Bitcoin
As Bitcoin (BTC-USD) navigates through its post-ATH correction, new tools and investor insights offer a roadmap for cryptocurrency traders and investors. Following the March all-time high (ATH) of $73,734, Bitcoin has entered a phase of widespread net distribution. This phase, captured through the on-chain analytics firm Glassnode’s Accumulation Trend Score, starkly differs from previous periods of accumulation, indicating a shift in investor sentiment from holding to selling as market conditions change.
Currently, Bitcoin’s price has consolidated around the $60,000 value area. Short-term traders and swing traders have been identified as key contributors to the market’s direction during this consolidation phase. Traders with a shorter time horizon have a particularly pronounced influence during market corrections. Because short-term speculators are not interested in the long haul, their selling pressure can accelerate and deepen pullbacks and corrections.
Employing On-Chain Analysis Tools
Glassnode’s Breakdown metric shows investors and traders the approximate cost basis of recent buyers. This metric suggests that when the market price approaches the cost basis of these short-term holders, there is typically a slowdown in selling activity, indicating potential seller exhaustion.
Additionally, the Market Value to Realised Value Ratio (MVRV) ratio, which compares the market price to the average cost basis of investors, serves as a critical indicator during corrections. When the MVRV falls into the 0.9-1 range, some analysts believe it signals that the market is undervalued and could be at or near a swing-low.
The Realized Loss metric further complements this analysis by highlighting periods when recent buyers are likely to panic sell. By integrating these on-chain analysis tools, investors and traders can gain a huge advantage over traders and investors using only classical technical analysis tools.
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