On-Chain Metrics And Indicators

Using on-chain metrics and indicators

On-chain metrics and indicators are not meant to replace other forms of research, but to complement them and provide a more holistic and comprehensive view of the market.

For example, fundamental analysis focuses on the intrinsic value of a cryptocurrency, based on its underlying technology, innovation, adoption, and potential. Technical analysis focuses on the price movements and patterns of a cryptocurrency, based on historical data, trends, and indicators.

On-chain metrics and indicators can add another layer of information and perspective to your research, by revealing the actual behavior and sentiment of the market participants, as well as the network supply and demand dynamics. By combining on-chain metrics and indicators with fundamental analysis and technical analysis, traders gain a deeper and more nuanced understanding of the market, and make more informed and profitable decisions.

Best cryptocurrency exchanges

1

9.4/10

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$1

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The Binance exchange is one of the largest cryptocurrency exchanges in the world with its headquarters in Hong Kong. According to the CoinMarketCap cryptocurrency portal, Binance holds the top spot in terms of aggregate indicators of the platform's daily turnover, the number of novices and active users, liquidity, and web traffic (ranking, queries, statistics in search engines, etc.). The exchange is also a cryptocurrency startup that has its own “native asset” used in the Binance ecosystem as the “basis gas” (payment internal unit). More about Binance Card

Pros/Cons

•low commissions due to liquidity and trading volumes.

•high platform performance;

•proprietary BNB Coin which allows Binance to reduce the commission size;

•a proprietary cold wallet guarantees the security of your crypto assets by storing them.

•complex verification procedure;

•the exchange is not licensed by a regulator;

•The platform can go offline without warning;

•there are complaints about the technical functionality of the platform;

•there is an intricate mechanism for calculating commissions and rewards (grid system Maker/Taker).

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2

9.2/10

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Minimum deposit:

₮1

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The BitGet crypto exchange provides traders with the opportunity to trade in spot, futures, and cryptocurrency. Cryptocurrency is used exclusively as instruments at the exchange: BTC (₿), LTC (Ł) ETH (Ξ), USDT (₮) and others. Trades are carried out on the crypto exchange’s own platform, which is available as a web terminal and an application for mobile devices. BitGet's fees are lower than its competitors in the market, with maker fees of 0.02% and takers of 0.06%. The commission can also be paid with bonus funds that each BitGet client receives upon registration, verification, and a trading account replenishment. There are no fees for maintaining an account, but a commission is charged upon withdrawal, the amount of which depends on the cryptocurrency in which the withdrawal is made. For investors, BitGet offers its own service for copying trades, and it is available at the exchange and at an affiliate program. Novice traders can use demo accounts to hone their trading skills, but there are no educational materials on the website. The BitGet cryptocurrency exchange provides services on an international level and cooperates with traders from different countries.

Pros/Cons

•availability of demo accounts;

•convenient ways to contact the support service;

•a wide range of cryptocurrencies for account replenishment;

•service of copying trades for receiving passive income;

•ability to reduce commissions using credits earned in the bonus program;

•ability to engage in algorithmic trading;

•the exchange uses hot and cold cryptocurrency wallets to store client funds.

•Deposits and withdrawals in fiat currencies are not available.

•There are no educational materials for novice traders on the exchange website.

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3

9.1/10

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Minimum deposit:

$1

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The Kraken exchange is a trading platform for Bitcoin, Ethereum, Tether, Cardano, XRP, other cryptocurrencies, and stablecoins. Fiats are represented by EUR, USD, CAD, CHF, AUD, GBP, and JPY. In addition to margin trading, Kraken has indices and futures trading. The exchange provides traders with x5 leverage for margin trading and x50 for futures. Commission fees are among the lowest on the market - up to 0.26%. The crypto exchange has a proprietary trading terminal for an internet browser, as well as mobile applications for iOS and Android devices. The platform offers an extensive knowledge base, tutorials, and video podcasts with news and analytics. The referral program is the standard single-level model with a yield of 20% of the referral’s commission fees.

Pros/Cons

•convenient, intuitive terminal with one-click trading;

•all major cryptocurrencies, as well as seven fiats;

•margin trading, as well as futures and indices trading ;

•large leverage (x5 for margin, x50 for futures trading);

•an extensive database of information and training materials;

•large trading volumes on the exchange provide high liquidity;

•some of the lowest fees in the cryptocurrency market.

•no investment programs;

•no call center.

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Types of on-chain metrics and indicators

There are several types of on-chain metrics and indicators, each with its own purpose and significance.

HODL Waves

HODL waves ("distribution waves") track the distribution of Bitcoin holdings among different ownership timeframes. They represent the cumulative amount of Bitcoin held by addresses that have been active within a specific time range.

For example, in the image reproduced below, the colored bands show the relative fraction of Bitcoin in existence that was last transacted within the time window indicated in the legend. The dark blue wave represents the amount of Bitcoin in existence that was last transacted more than 10 years prior to the denoted date (Nov 13, 2021). Similarly, the light blue wave represents the amount of Bitcoin in existence that was last transacted between 7 and 10 years prior to the denoted date (Nov 13, 2021).

HODL Waves (source : unchained.com)

HODL waves can be used to gauge the overall sentiment of Bitcoin holders and make informed trading decisions.

When HODL waves are ascending, it suggests that a significant portion of Bitcoin holders are accumulating or holding their coins for an extended period. This can indicate growing confidence and long-term bullish sentiment, potentially leading to upward price pressure.

Conversely, descending HODL waves suggest that a significant portion of Bitcoin holders are distributing or selling their coins. This indicates declining confidence and short-term bearish sentiment, potentially leading to downward price pressure.

Total Value Locked (TVL)

Total Value Locked (TVL) represents the total value of digital assets locked or staked in DeFi protocols. It reflects the overall activity and liquidity within the DeFi ecosystem. TVL is measured in US dollars and is calculated by summing up the value of all assets locked in DeFi protocols, such as lending protocols, decentralized exchanges, and yield farming platforms.

Total Value Locked (source : defilama.com)

Traders utilize TVL to gauge the overall health and growth of the DeFi ecosystem and make informed trading decisions. When TVL is increasing, it suggests that more users are depositing funds into DeFi protocols, potentially indicating growing confidence and demand for DeFi services. This can lead to increased token prices and overall bullish sentiment in the DeFi sector.

When TVL is decreasing, it suggests that users are withdrawing funds from DeFi protocols, potentially indicating a decline in confidence or demand for DeFi services. This can lead to decreased token prices and overall bearish sentiment.

Minor Outflows

Minor outflows refer to a situation where a significant amount of cryptocurrency is being withdrawn from cryptocurrency exchanges. This can be a sign that whales, or large investors, are moving their funds off exchanges and into cold storage. This can happen for several reasons, such as a fear of a market crash or a desire to take profits.

Weekly Crypto Outflows (source : CoinShares.com)

Crypto traders can rely on minor outflows as a signal to make trades. If they see that there are significant outflows from exchanges, they may want to sell some of their cryptocurrency in case the price crashes. Conversely, if they see that outflows are slowing down, they may want to buy some cryptocurrency in anticipation of a price rebound.

Exchange Flows

Exchange Flows measure the movement of cryptocurrencies into and out of cryptocurrency exchanges. It's a key metric for understanding market sentiment and potential price movements.

Exchange Flows (source : Glassnode.com)

Traders utilize exchange flows to gauge market sentiment and make informed trading decisions. When exchange flows are positive, indicating a net inflow of cryptocurrencies into exchanges, it suggests that traders are depositing funds to buy cryptocurrencies. This can lead to increased buying activity and upward price pressure.

And when exchange flows are negative, indicating a net outflow of cryptocurrencies from exchanges, it suggests that traders are withdrawing funds to sell cryptocurrencies. This can lead to increased selling activity and downward price pressure.

Net Unrealized Profit/Loss (NUPL)

Net Unrealized Profit/Loss (NUPL) is a crucial metric reflecting the overall profitability or loss of cryptocurrency holders. It represents the average difference between the current market price of a cryptocurrency and the average purchase price of all holders. NUPL is expressed as a percentage, with positive values indicating overall profitability and negative values indicating overall losses.

NUPL (source : CryptoQuant.com)

When NUPL values are high, it suggests that a significant portion of holders are in profit, potentially leading to increased selling pressure as they take profits. This can trigger a downward trend in cryptocurrency prices.

Conversely, low NUPL values indicate that a majority of holders are experiencing unrealized losses, potentially decreasing selling pressure. This can lead to a consolidation phase or even a reversal in price direction as traders anticipate a potential recovery.

Market Value to Realized Value (MVRV)

Market Value to Realized Value (MVRV) represents the ratio of the current market capitalization of a cryptocurrency to its realized capitalization, which is the average purchase price of all circulating coins. MVRV is expressed as a multiple, with values greater than 1 indicating overall profitability and values less than 1 indicating overall losses.

When MVRV values exceed 1, it suggests that a significant portion of holders are in profit, potentially leading to increased selling pressure as they take profits. This can trigger a downward trend in cryptocurrency prices.

Alternatively, when MVRV values are significantly below 1, it indicates that a majority of holders are experiencing unrealized losses, potentially reducing selling pressure. This can lead to a consolidation phase or even a reversal in price direction as traders anticipate a potential recovery.

Dormant Coins

Dormant Coins are the coins that have not moved or changed wallets for a long time. They represent the coins that are held by long-term investors or lost by careless users.

Bitcoin: Average Coin Dormancy (source : glassnode.com)

Dormant coins refer to cryptocurrencies that have not been moved or transferred for an extended period, typically measured in months or years. Tracking dormant coins can provide insights into the overall supply dynamics of a cryptocurrency and potential market movements.

When a significant amount of dormant coins are suddenly activated, it suggests that a portion of the cryptocurrency supply is entering the active market. This can potentially lead to increased trading volume and price fluctuations.

And when dormant coins remain inactive, it suggests that the overall supply is not changing significantly, potentially indicating a stable market or a lack of interest in that particular cryptocurrency.

Advantages of using on-chain metrics and indicators

Using on-chain metrics and indicators offers investors several advantages.

For example, they are based on the data that is recorded and verified on the blockchain, which is open and accessible to anyone. Unlike off-chain metrics and indicators, which may be subject to manipulation, distortion, or error, on-chain metrics and indicators are objective and accurate, and can be independently verified and audited.

On-chain metrics and indicators also provide valuable insights into the activity and transactions on the blockchain, which can reveal the supply and demand dynamics, the sentiment and behavior of investors, and the overall health and performance of the network. By analyzing on-chain metrics and indicators, investors can gain a deeper and more nuanced understanding of the market, and identify potential opportunities and risks.

In addition, by using on-chain metrics and indicators, investors can spot trends and patterns that may not be visible or obvious from other forms of research, and make more informed and profitable decisions.