On-chain data is an essential base that accurately reflects what is happening on the Blockchain network. Therefore, in this article, I will introduce to you What is On-chain Analysis? How to Use It? and How On-chain data can help in investing in the field of Crypto as well as some tools that provide our On-chain data.
Let’s Get Started!
What is On-chain Analysis?
On-chain data is data located on Blockchain; you can understand Blockchain as blockchains that are linked together and hold data. These data could be:
Data about Blocks (time, gas fees, miners, …).
Transaction data (participants’ wallet addresses, the amount transferred, which tokens are transferred,…).
Actions to interact with Smart Contract (add liquidity, participate in administration,…).
Whenever you act on the Blockchain, that action will be verified by the Nodes and updated to the overall Blockchain network.
At the same time, because Blockchains are decentralized networks operating on many Nodes, Bitcoin has 11,558 nodes, Ethereum has more than 8,000 nodes, and data is shared widely so that no one can manipulate as well as can modify this data source.
So On-chain data is the most honest and clear data.
Meaning of On-chain analysis
Charts can be “DRAWED.”
News can be “BUY.”
But On-chain data cannot be Fake.
The above three sentences have confirmed the vital role of On-chain data; when analyzing On-chain data, you will receive the following benefits:
Verified information
On-chain data does not lie, so it will provide us with the most accurate and objective information on what is happening in the market.
Because Blockchain technology is built towards transparency in information, this information is difficult to penetrate and change, so this can be considered the most reliable source of data on the market.
Monitor real-time market behavior.
On-chain data also helps you precisely track the behavior of objects in the market. This is especially important when monitoring the activity of Whales, who possess a wealth of financial and informational resources to manipulate the markets.
Therefore, tracking the whales On-chain and acting rationally will likely help you become the “winner” in the market.
Help forecast and make investment decisions.
In addition, data analysis also helps you to forecast situations and make reasonable investment decisions.
Network activities often precede information on communication channels. So updating the On-chain information regularly also helps you to be able to anticipate situations so that you can be one step ahead of the community.
For example, when the price drops but large wallets do not sell and continue to buy, it may be time to consider buying rather than selling in bulk.
For DeFi platforms, you can also rely on On-chain data about products to evaluate project performance and make decisions such as:
If the product attracts a large volume of transactions and many users, the project’s token will likely have a high potential for price appreciation.
In addition, when the On-chain data of the product is good, it is also an opportunity for you to make a profit by interacting with the Dapps themselves.
Some notes when analyzing On-chain data
As such, On-chain data provides a lot of benefits, but there are still some points to keep in mind when performing On-chain data analysis, as follows:
Requires a lot of knowledge and experience: I consider this a reasonably in-depth tool, so users must have background knowledge and multi-dimensional perspectives to evaluate and project from the information collected accurately.
Compare multiple sources of information: Currently, on the Internet, many tools provide On-chain data; there will be tools that are not accurate. Therefore, you must compare and contrast information from many sources for the most accurate assessment.
Note for the data from the project’s website: Sometimes, the numbers provided are not entirely accurate (due to many typical reasons, such as marketing), so you must also check that number on the Explorer of the Platform Blockchain (also known as the Blockchain Explorer) of that Dapp.
Regular updates: Since market behavior constantly changes, information must be updated regularly to act quickly.
On-chain data analysis case study
Below I will give a study on how the benefits of On-chain data analysis will help you in the investment process of Sushi.
Data Analysis On-chain Sushi
For example, the first case study was about AMM SushiSwap and the SUSHI token.
Some conclusions are pointed out after analyzing On-chain data:
Regarding products, Sushi’s AMM is doing very well, with revenue increasing five times in solid market volatility.
Sushi’s products are being developed Multi-chain to other platforms such as Polygon or Fantom.
The selling force of SUSHI Token is still massive, with the token being pushed on the centralized exchange, Coinbase, increasing sharply.
So, after making the above conclusions, you can ultimately make the following decisions:
While the market is so volatile, and the platform’s revenue has increased sharply, proving that Liquidity Providers will receive many benefits, this is an opportunity for you to provide liquidity to receive a part of the revenue. This is increasing.
With such intense selling pressure, it is possible to think about restructuring capital for SUSHI and should not bottom out the token at that time.
Tools to support On-chain data analysis
In this section, I will introduce you to some tools that will help you when performing On-chain analysis.
For macro on-chain analytics
These are tools that bring information about the whole market (or in terms of macro). On-chain data will mostly be about Bitcoin, Ethereum and large-cap DeFi tokens – coins that hugely influence the entire Crypto market. Or information about the amount of Stablecoins on the market.
Some of the Websites can be mentioned as:
The Block: In the Data section, you can access a lot of data such as Spot, Future transaction volume, or the amount of Bitcoin, Ethereum going in and out of exchanges. As well as information about which stablecoins are on which Blockchain, …
Crypto Quant: A handy tool when analyzing BTC or ETH On-chain data. The website provides data ranging from basic BTC in and out of exchanges to in-depth On-chain indices.
Glassnode: Provides quite a bit of information related to BTC On-chain data.
Whalebot Alert: Channel telegram alerting whale activities.
And many other tools such as Whalemap Chart, Into the Block, etc.
Some ways to use the above tools can suggest to you, such as:
Use Crypto Quant to monitor the Inflow Outflow of BTC or ETH and watch for large trades to see how the whales are doing.
The amount of BTC on the current exchanges is high or low; if it is high, it will create considerable selling pressure that negatively affects the price.
The tool informs how many Stablecoins are Mined; if many Stablecoins are minted or on exchanges, there is likely considerable money to push the price up.
For micro-on-chain analytics
These are On-chain analysis tools used when you need to observe data on a smaller scale (For example, when you need to analyze the On-chain data of that project or a token belonging to the same project), an ecosystem,…):
Project Website: The data can be obtained from the project website itself. However, as I noted above, you need to check again on Explorer to re-validate the accuracy.
Blockchain Explorer: This is the most accurate source of information. Some Explorers can be mentioned as Etherscan, Bscscan, Explorer Solana, …
Token Terminal: A tool that provides a lot of On-chain indicators related to the project, it is also a reliable source when you validate Data from the project website.
Nansen: The primary tool that focuses on On-chain data of Tokens on Ethereum.
Dune Analytics: Provides a wide variety of On-chain information. However, this platform includes many tools the community contributes, so you also need to verify the information when using it.
And many more On-chain analytics tools? Please help me in the comments section below.
Summary
On-chain data is a potent tool and excellent assistance for making investment decisions. However, this tool requires users to have analytical knowledge and experience at a certain level to use it effectively.
In addition, in the article, I also analyzed some On-chain analysis use cases to make projections and some On-chain analysis tools I often use.
Hopefully, the information I provide will help you in your investment process! Wishing you all the right decisions in this volatile market time.
