What is Onchain Crypto Analysis?
Onchain Crypto Analysis is the process of analyzing data from blockchain transactions e.g. transaction histories, wallet addresses, and the movements of digital assets.
Since public blockchains are transparent, there's a huge amount of transactional data available. However, converting this data into actionable insights is not easy.
That's where Onchain Crypto Analysis comes in. It's the process of analyzing data from blockchain transactions e.g. transaction histories, wallet addresses, and the movements of digital assets on public blockchains like Bitcoin & Ethereum.
Onchain Crypto Analysis provides insights into investors' strategies and helps you make better investment and trading decisions.
Onchain Crypto Analysis is a 3-step process involving:
Extraction of raw data from Blockchain nodes
Decoding this data to ensure accurate datasets
Categorizing this data to build actionable insights
1. On-chain data points
The most important on-chain data points are:
1. Holdings and Activity of Whales and Institutions
This involves monitoring large-scale players in the crypto market, known as 'whales' and institutions. These entities have significant holdings and their activities can influence market trends. Analyzing their transaction patterns helps in understanding market dynamics and potential shifts.
2. Tracking Smart Money Activity
Smart Money refers to wallets that demonstrate high returns in specific blockchain activities. Tools like Nansen track these wallets, providing insights into their strategies across various activities like DEX trading or liquidity provision. This analysis helps in identifying successful investment patterns and strategies.
3. Movement and Holders of Specific Tokens
Focusing on specific tokens, this approach analyzes top token holders' buying, selling, and holding patterns. It includes monitoring large transactions to and from exchanges and changes in holdings, offering insights into market sentiment and potential investment opportunities.
2. Limitation of Onchain Analysis
Some of the limitations of Onchain Analysis are:
1. Incompleteness of Data
Not all crypto activities occur on the blockchain. Transactions within Centralized Exchanges (CEXs) are off-chain and largely opaque, limiting the scope of on-chain analysis.
2. Anonymity and Identity Challenges
While blockchains are transparent, the anonymity of wallet addresses poses challenges in accurately identifying the entities behind transactions. This can lead to errors in analysis and interpretation.
3. Dependence on Data Quality and Interpretation
Effective on-chain analysis relies heavily on the quality of the raw blockchain data and the analytical capability of the platform. Misinterpretation of data or reliance on low-quality data can result in inaccurate conclusions, affecting decision-making processes.
3. Nansen
Nansen is a sophisticated on-chain analytics platform. Some of its features are:
Millions of labeled addresses that enable detailed analysis of wallet activities and transaction trends.
Smart Alerts that notify users about specific on-chain activities, helping them to stay updated with important events.
Programmatic access to on-chain data.
Professionally researched insights.
Ability to manage personal or organizational holdings, collecting data from various wallets across multiple blockchains.
Tracking of smart money, funds, and whales, along with deep analysis of individual tokens including their supply, demand, price history, and on-chain activity.
Support for several blockchains, including Ethereum, Polygon, BNB Chain, and Avalanche.
Real-time updates on market buying and selling trends.
4. Ethereum ETL
Ethereum ETL is an open-source project for converting blockchain data into convenient formats like CSVs and relational databases. It supports exporting Blocks, Transactions, ERC20 / ERC721 tokens, Token transfers, Receipts, Logs, Contracts, and Internal transactions.
Ethereum ETL is used by Google BigQuery, and Nansen.
References: Nansen, Ethereum ETL