How to conduct on-chain cryptocurrency analysis?

In financial markets, there are two main types of analysis: technical and fundamental.

In technical analysis, investors and traders use graphical tools, such as price charts and indicators.

In fundamental analysis, key indicators include macroeconomic data and the financial statements of individual companies.

However, with the emergence of digital assets and the development of blockchain technology, on-chain cryptocurrency analysis has emerged, combining both technical and fundamental factors.

What is on-chain cryptocurrency analysis?

On-chain cryptocurrency analysis is a method of researching the crypto market that uses open data directly from blockchain networks. On-chain cryptocurrency analysis enables the identification of transaction patterns and a better understanding of network activity and the current state of blockchain networks.

All data recorded on public blockchains is available for viewing by any third party, which is what makes on-chain cryptocurrency analysis accessible to a broad audience. Such data includes, for example:

• Information about user transactions, including amount, addresses, date, and time;
• The amount of cryptocurrency held in the balance of a particular crypto wallet.
• The number of transactions processed by a blockchain network over a specific period.
• The number of holders of a particular cryptocurrency, whose balances can also be broken down.
• The number of active wallets over a given period, including the number of interactions with smart contracts in a decentralized network.

In the analyst community, the term "on-chain metrics" is actively used — these are the core indicators of blockchain networks. These data points are precisely what are used for on-chain cryptocurrency analysis and enable the identification of key trends in the digital asset market.

The term "on-chain cryptocurrency analysis" should not be confused with off-chain analysis. For on-chain cryptocurrency analysis, only metrics available within decentralized networks are used.

For off-chain analysis, external data is used, such as market sentiment indicators (the crypto fear and greed index) and exchange metrics (trading volumes and market capitalization).

What data is used for on-chain cryptocurrency analysis?

As mentioned earlier, on-chain cryptocurrency analysis allows the use of both technical and fundamental indicators. This applies to both individual crypto projects and the crypto market as a whole.

The complete list of metrics for on-chain cryptocurrency analysis is extensive, numbering in the thousands, so this article lists only the main ones most commonly used by professional investors and traders.

Transaction data

Transactions are one of the primary sources of information for on-chain cryptocurrency analysis. Each transaction contains information about:

• Sender and recipient addresses;
• Transaction amount;
• Transaction status, i.e., whether it has been confirmed, is still being processed, or was rejected due to an error;
• Timestamp;
• The block number in which the transaction was included.

Transaction data in blockchain networks is used to track network activity and the movement of cryptocurrencies. This information is key to identifying illegal fund movements. Transaction data also enables tracking the activity of large investors (crypto whales).

Separately, on-chain cryptocurrency analysis considers transaction data related to the operation of smart contracts. This information helps analysts better understand how users interact with decentralized applications (dApps) in the DeFi sector and assess dynamics in this segment of the crypto market.

State of the blockchain network

Key metrics for displaying the state of a network include the number of transactions and node data.

The number of transactions enables assessing network throughput, measured in transactions per second (TPS), which, in turn, helps determine network congestion and the average transaction fee — both necessary for planning transfers.

Node data includes the status of key network nodes, which can affect the security and stability of the network. Also crucial for on-chain cryptocurrency analysis are metrics such as the number of active addresses and the total transaction volume.

All of these data points together make it possible to fully reflect the state of a blockchain network, including asset distribution among holders and cryptocurrency traffic associated with exchanges. The latter indicator reflects the number of assets investors withdraw from wallets for storage or send to exchanges for potential sale.

Total Value Locked (TVL)

TVL is one of the key indicators of the decentralized finance market. Total value locked shows how many assets are locked in smart contracts of decentralized applications and protocols. This metric helps determine how many assets are currently not in circulation on the crypto market.

In addition to total value locked, another critical metric for on-chain cryptocurrency analysis is the amount of assets locked in staking on networks based on the Proof-of-Stake (PoS) consensus mechanism.

Moreover, unlike total value locked, this metric allows forecasting how much cryptocurrency will be reintroduced into circulation at a specific time when it is withdrawn from staking.

Hash rate and network difficulty

Earlier blockchains such as Bitcoin, Litecoin, and Dogecoin operate on the Proof-of-Work (PoW) consensus mechanism. The key indicators for such networks are total computational power (hash rate) and network difficulty.

These indicators reflect the activity of miners in PoW cryptocurrency networks. Miners play an essential role in the dynamics of blockchain networks, so investors also rely on this data in on-chain cryptocurrency analysis.

Where to view data for on-chain cryptocurrency analysis?

Some metrics for on-chain cryptocurrency analysis — such as the number of transactions, their details, hash rate and network difficulty, number of holders, and address balances — can be viewed using block explorers.

Some of these services (Blockchair, OKLink, and Blockchain.com) provide data for multiple blockchains simultaneously.

However, some specialized explorers display data only for specific blockchains:

• Etherscan for Ethereum;
• Similarly, Arbiscan and Polygonscan for Layer 2 (L2) networks, Arbitrum and Polygon;
• BNBScan for BNB Chain;
• Solscan.io for Solana;
• Tronscan for TRON.

However, blockchain explorers do not allow the collection of statistical data for on-chain cryptocurrency analysis, such as the number of active users, TVL, and other DeFi market metrics; the number of holders broken down by wallet balance ranges; the number of coins locked in staking; and others.

For this purpose, there are specialized analytical platforms that aggregate a broader range of data for on-chain cryptocurrency analysis:

• Glassnode;
• CryptoQuant.

There are also analytical platforms with user-customizable dashboards for on-chain cryptocurrency analysis. Such services include Dune Analytics and Arkham Intelligence.