Explaining Onchain Analysis and Why Crypto Investors Need It

Blockchain analytics analyzes transactions, trades, and wallet address holdings to comprehend market participants' real-time actions on blockchains. For investors and traders, you can see who owns or trades various cryptocurrencies, how smart actors arrange their portfolios, and how token holders respond to market events. This unique market information, absent in traditional finance, gives investors a fresh research and due diligence tool.

Important data points must be identified. Although blockchains record every transaction and occurrence, traders only use some of the data. Elite traders can focus on important information and ignore the rest. Explore the most important onchain data points to direct your path.

Smart Money wallets provide the highest on-chain returns. Smart Money labels are given to outstanding performers in liquidity providing, DEX trading, NFT trading, airdrop farming, and other activities.

Onchain analysis can also focus on token movement and holders rather than wallet addresses. Top holders' holdings and transactions can reveal their token attitude and perspective. Tracking token buyers and sellers can inform your trading decisions.

Monitoring onchain capital flows may be the most flexible approach. Without specific tokens or addresses, you can uncover alpha by examining onchain flows and tracing the money.

Blockchains record monies flowing between addresses, therefore they keep transactions between two or more wallets. Each blockchain transaction has a unique ‘hash’ that stores the sender, receiver, timestamp, and amount(s). Where and when money travels is another key component of on-chain research.

We can see the largest token holders via chain analysis. Arkham and other block explorers automatically query blockchain data on users' behalf and sort the output in an easily readable manner to show the top holders of any token in a list.

Exchange flows are monies transferred between non-exchange wallets and exchange wallets. On chain analysis shows the net amounts of funds going to an exchange. Analysts use this data to study exchange flows over longer timeframes or for specific tokens.

Inflows of tokens to exchanges are usually deemed unfavorable or ‘bearish’ since they reflect tokens being sold. As a user removes tokens from exchanges to wallets, it implies an intent to retain them for a longer time, making it a positive or ‘bullish’ event.

With a variety of Ethereum Virtual Machine (EVM) compatible blockchains, Layer 2 scaling solutions, and alternative Layer-1 blockchains, market participants can use and transfer value across multiple blockchains.