On-chain analysis
What is On-chain analysis?
On-chain analysis involves looking back at historical data on the blockchain ledger to help make informed investment decisions. On-chain analysis quantifies and evaluates the fundamentals, utility and transaction activity of a chosen digital asset and its specific blockchain data. We use on-chain data analysis to predict future price movements by comparing, contrasting and identifying a convergence across data points.
The CryptoZion newsletter will include on-chain data analysis for various digital assets but prioritise Bitcoin, the market leader.
If you are just starting to learn about digital assets then be patient when it comes to on-chain analysis. Not everyone has to do it but it can be helpful and its a lot easier than it initially looks.
In/Out of the Money Jan 2020 - May 2022
Data source: intotheblock - In/out of the money
The In/Out of the money chart is the percentage of addresses that would have made money vs the percentage of addresses that would have lost money had they sold at the price of the given date.
The above chart shows that they remain profitable if someone had bought BTC before March 2021. Currently, there are marginally more who are hodling for future profits. Futuristically we are looking for this on-chain data to show a larger body of green above the BTC price, signalling a better buy zone.
Break-even data: Jan 2020 - May 2022
Data Source: intotheblock - Historical Breakeven data.
Looking to the left, we can see that anyone who bought BTC before March 2021 had a vast opportunity for profitability. Looking to the right as more green space appears, signalling a better buying opportunity than at the Markey cycle peaks.
What can we take away from this data?
There is still a significant amount of market uncertainty. Will it go up or down, nobody truly knows, and if they say otherwise, they’re a liar or insider trading.
There are far more addresses taking profits than in losses at market cycle peaks.
The market remains relatively balanced and arguably needs to allow many newcomers to buy-in.
Ideally, this information will increase the chances for subscribers to buy in at lower prices ensuring max profitability during the next market cycle peak.
Being aware of your own risk levels is important. Buying in now is better than buying in April 2021 but may not be as good in a months time. However, not buying now may be worse than buying in a months time. Having a little skin in the game can quell the desire for a quick fix and increase our intention to learn.