In classical finance, two main approaches to market analysis are used — technical and fundamental. Technical analysis is based on working with price charts and indicators. Fundamental analysis relies on macroeconomic data, company reports, and key economic indicators.
With the development of blockchain technologies, a third approach has emerged — on-chain analysis, which combines elements of technical and fundamental analysis by using data directly from blockchain networks.
What is on-chain analysis of cryptocurrencies
On-chain analysis of cryptocurrencies is a method of analyzing the crypto market that uses data recorded directly on the blockchain. This approach makes it possible to identify transaction patterns*, assess the level of network activity, and understand the current state of blockchain networks.
* Transaction patterns are stable and recurring models of behavior on the blockchain that reflect typical ways cryptocurrencies move between addresses. They include transaction frequency and volumes, transfer sequences, interactions with exchanges and smart contracts, and enable identification of the actions of different market participant groups, including retail users, large holders, and institutional investors.
Since most blockchains are public, all information in them is available for viewing by any user. Such data include:
- transaction details: amounts, addresses, date, and time;
- cryptocurrency wallet balances;
- number of transactions over a specific period;
- number of holders of a particular crypto asset, broken down by balance size;
- number of active addresses and interactions with smart contracts.
In the analytical environment, these indicators are commonly referred to as basic blockchain network metrics. They form the foundation of on-chain analysis and help identify significant market signals.
It is essential to distinguish on-chain analysis from off-chain analysis. The on-chain approach uses exclusively data from the blockchain, whereas off-chain analysis relies on external sources such as market sentiment indices, trading volumes, and cryptocurrency market capitalization.
What data are used in on-chain analysis
On-chain analysis allows working with both fundamental and technical metrics. It is applied both to evaluate individual crypto projects and to analyze the crypto market as a whole.
There are thousands of on-chain metrics, but in practice, the most commonly used are key indicators demanded by professional investors and traders.
Transaction data
Transactions are the primary source of information for on-chain analysis. Each operation contains data about:
- sender and recipient cryptocurrency addresses;
- transfer amount;
- transaction status;
- timestamp;
- the block in which the transaction is included.
Transaction analysis enables tracking fund movements, assessing network activity levels, identifying suspicious operations, and observing the actions of large holders — the so-called crypto whales.
Special attention is paid to transactions related to smart contracts. These data help evaluate how users interact with DeFi protocols and decentralized applications.
Blockchain network state
To assess the state of a network, metrics such as the number of transactions and node data are used. The number of transactions helps determine network throughput (TPS)*, blockchain load level, and average network fees.
* Network throughput (TPS) is a metric that reflects the number of transactions a blockchain network can process per second. It is used to assess network performance, congestion levels, and the potential impact of load on transaction confirmation speed and fee size.
Information about network nodes reflects their resilience and security. Metrics such as the number of active addresses and total transaction volume are also considered, providing insight into the distribution of crypto assets and the movement of funds between wallets and exchanges.
Total Value Locked (TVL)
TVL is one of the key indicators of the decentralized finance market. It shows the volume of assets locked in smart contracts of DeFi protocols and enables assessing the portion of cryptocurrency temporarily removed from circulation.
Additionally, the volume of funds held in staking* is analyzed in networks with a Proof-of-Stake consensus mechanism. This metric helps forecast a potential increase in supply when coins are unlocked from staking.
* Staking is the process of locking cryptocurrency in a blockchain network with a Proof-of-Stake consensus mechanism to participate in transaction validation and ensure network security. Locked assets are temporarily removed from free circulation, and in return, coin holders receive rewards in the future.
Hash rate and network difficulty
For blockchains operating on the Proof-of-Work algorithm, such as Bitcoin, Litecoin, and Dogecoin, key indicators are the hash rate* and network difficulty*.
* Hash rate is a measure of the total computational power of a blockchain network, reflecting the number of hash operations performed by miners per unit of time. It is used to assess miner activity and network security levels.
* Network difficulty is a blockchain parameter that determines how difficult it is for miners to find a valid hash to create a new block. Difficulty is automatically adjusted based on the hash rate and serves to maintain stable block times and protect the network from attacks.
These parameters reflect miner activity and the level of network security. Since miners directly affect the functioning of PoW blockchains, investors take this data into account in on-chain analysis.
Where to get data for on-chain analysis of cryptocurrencies
Basic information — transactions, balances, hash rate, network difficulty, and number of holders* — can be found in blockchain explorers. Universal services such as Blockchair, OKLink, and Blockchain.com support multiple networks at once.
* Holders are cryptocurrency owners who keep digital assets in their wallets for a specific period without engaging in active trading operations. The number of holders is used as an indicator of asset distribution and the level of long-term interest in a cryptocurrency.
There are also specialized explorers for individual blockchains:
However, blockchain explorers do not provide the aggregated statistics required for deep on-chain analysis, such as TVL, user activity, holder distribution, and staking data.
For these purposes, analytical platforms that collect an extended set of metrics are used:
- Glassnode;
- CryptoQuant.
There are also services with customizable analytical dashboards that allow users to build their own panels for on-chain analysis, such as Dune Analytics and Arkham Intelligence.