On-Chain signals are direct data from the blockchain, helping to analyze trading behavior, market trends, and investor sentiment. These indicators provide transparent information about supply and demand, cash flows, and the level of participation of entities in the crypto ecosystem.
1. Important On-Chain Signals
A. Supply & Demand Index
- Amount of Bitcoin/Ethereum on exchanges (Exchange Reserves)
- Decrease: Investors withdraw funds to personal wallets → Accumulation signal, upward trend.
- Increase: Money flows into exchanges for selling → High selling pressure, may reduce prices.
- NVT Index (Network Value to Transactions Ratio)
- Formula: Market capitalization value / On-Chain transaction volume.
- High NVT: Network value increases but few transactions → May be overvalued.
- Low NVT: Network value increases with high transactions → Sustainable upward trend.
- MVRV Ratio (Market Value to Realized Value)
- Evaluating the average profit/loss of investors.
- MVRV > 1: Investors are in profit → Easy to take profits, risk of price drop.
- MVRV < 1: Investors are at a loss → Usually an attractive buying zone.
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B. Whale Data & Large Cash Flows
- Whale Activity
- Whale wallets (holding ≥ 1,000 BTC) move → Can significantly impact prices.
- For example: If whales transfer BTC to exchanges, a sell-off may be imminent.
- Stablecoin Supply Ratio (SSR - Stablecoin supply ratio)
- Low SSR: High stablecoin supply → High potential for buying → Bullish.
- High SSR: Few stablecoins, many holding crypto → Easy to adjust prices.
C. Investor Sentiment Index
- Active Addresses (Daily active wallet count)
- Many active wallets → Vibrant market, may signal price increase.
- Few active wallets → Decreased interest, may signal downward trend.
- Funding Rate (Funding ratio on derivatives exchanges)
- High positive Funding Rate → Many investors Long → May be pressured to drop prices.
- High negative Funding Rate → Strong shorting by investors → Price may bounce back.
2. Using On-Chain Signals in Trading
- Accumulation phase:
- The number of BTC on exchanges decreases, many withdraw to personal wallets.
- Whales buying → Market signal may be about to rise.
- Bull Market Phase:
- Decrease in stablecoin supply (due to being used to buy crypto).
- Many active wallet addresses, high On-Chain transaction value.
- Correction Phase:
- High MVRV → Investors are in profit, likelihood of taking profits increases.
- BTC being transferred to exchanges a lot → Strong selling pressure.
3. Tools to Monitor On-Chain Signals
- Glassnode: Provides data on wallet addresses, NVT, MVRV.
- CryptoQuant: Tracking whale cash flows, stablecoin ratios.
- Santiment: Analyzing market sentiment based on On-Chain data.
Conclusion
On-Chain signals help investors better understand market trends, whale behavior, and investor sentiment. Combining On-Chain with technical analysis can lead to more accurate trading decisions.