What is onchain analysis and how to use it as a crypto trader?

• Onchain analysis is the examination of blockchain data to understand transaction patterns, asset movements, and network health.

• It provides unique insights into market movements, absent in traditional finance, providing participants with a different approach to research and due diligence.

• Onchain analysis can be a new framework for crypto valuation which allows users to establish an edge.

Onchain analysis, also known as blockchain analytics, involves examining blockchain data such as transactions and wallet address holdings to understand the actions of market participants on respective blockchains in real time. This unique insight into market movements, absent in traditional finance, provides participants with a different approach to research and due diligence.

Public blockchains such as Ethereum, Solana, and Bitcoin are transparent digital ledgers, auditable by anyone and everyone. Every transaction and event on these chains is visible and publicly accessible, allowing anyone, anywhere, at any time, to access and analyze it.

This transparency ushers in a different paradigm in trading. It enables real-time monitoring of transactions, providing a deep understanding of market activities. Consequently, users who effectively utilize onchain analytics can make more informed decisions and identify opportunities early.

On-chain data refers to transactions that have been verified and are recorded on a blockchain. On-chain data is openly accessible through block explorers, and users can use this information to determine potential price movements. On-chain analysis uses the data to predict trends and gauge market sentiment – it involves monitoring how funds move on the blockchain to detect potential transaction opportunities.

On-chain analysis leverages multiple metrics, such as active addresses, transaction volume, supply distribution, and total value locked in relation to the price action of an asset. Realized profits and losses, supply in profit or loss, and realized capitalization are the primary on-chain indicators for market action.

Various tools are available for onchain analysis. These tools allow users to look up any wallet address or smart contract. But they don’t aggregate data or offer tools to make sense of the wealth of data points that exist.

In response, numerous platforms and sources have sprung up that each offer insightful charts and dashboards to better help users visualize blockchain data and track the movements of crypto and individual wallets.

On-chain analysis is the examination of blockchain data to understand transaction patterns, asset movements, and network health, aiding stakeholders in making more informed decisions within the cryptocurrency space.

By measuring data points like token holder counts, transaction volume and decentralization metrics, users can gain a better understanding of the fundamental value of a cryptocurrency.