The public nature of the blockchain continuously generates an endless stream of data, since every transaction and address leaves a clear trace. This information, It is known as on-chain data and offers a way to analyze the activity of the cryptocurrency network in detail.
Some indicators in the chain, such as The number of active addresses, the HODL wave and the hashrate have become known in the industry, but the general public only scratches the surface.
As the number of available on-chain indicators has grown to an overwhelming number, it has also become difficult to find which ones are most useful to the average investor. ORA good starting point are the indicators for average deposits on exchanges, addresses of “sent by” Bitcoin and deposits of miners on exchanges.
Average deposits on exchanges
There is usually some confusion when analyzing the flow in and out of an exchange. Buyers do not have to withdraw money after purchasing cryptocurrencies, and so do entries, as the money may remain inactive for quite a long time before a trade takes place.
Average Bitcoin deposits on exchanges. Source: CQ.live
A better way to quantify this flow is to measure the average size of the deposits. As shown in the graphic above, Each maximum size of average deposits corresponds to a local Bitcoin prize fund. This move could be the trail of a large cryptocurrency whale that capitulates and reduces losses.
Such an indicator is particularly true during a long-term downward trend. As mentioned above, On-chain indicators should not be analyzed in isolation. A surrender could only take place after several months if the price shows no strength.
Bitcoin sent from addresses
Instead of measuring the number of active addresses, The 7-day average of the “Sent From” address metric provides a clearer picture of network activity. This drastically reduces the noise when withdrawing from exchanges and doubles the number of mixed services.
Bitcoin’s daily active source addresses. Source: BitInfoCharts
Note how any major increase in the daily average of “sent from” addresses will match Bitcoin’s local price cap in the short term. These sudden spikes in the supports that move the coins indicate short-term complaints, although this does not necessarily indicate a change in the market trend.
This indicator should also not be interpreted without taking market trends into account. This case occurred during the April to July 2019 recovery, when the metric system posted two peaks, indicating a cooling period, although prices continued to rise a few weeks later.
Miners and moving to exchange
Glassnode offers another detailed view of transfers from Bitcoin miners to exchanges. Before halving in May, an average of 1,800 BTC was mined per day, and that number has now been reduced to 900.
While exchanges aren’t necessarily the only way miners can trade, this is by far the best way to measure their short-term price expectations.
Bitcoin miners switch to exchanges. Source: Glass knot
The top chart of the 7-day moving average shows that this flow has dropped dramatically around the halving of Bitcoin and the number has remained at its lowest level in 12 months. Meanwhile, Bitcoin was relatively stable at $ 9,800 and did not exceed $ 10,000. The reduction in transmission on exchanges can be interpreted as a somewhat bearish indicator.
This accumulated position of miners who refuse to sell could be a potential catalyst for a stronger decline if the bitcoin price is unable to maintain higher levels. In contrast to open interest futures contracts, in which short sellers settle as the market grows, such an effect would not occur because the amount of BTC held by miners would increase.
On-chain data help cushion investors’ prejudices
On-chain analysis is not an exact science, since trading is at least initially a human-powered activity.
With conflicting signals, investors tend to rationalize and exclude those who are not aligned with their mindsets and desires.
As I said, there is a lot of noise on the market, but on-chain data analysis can help investors to separate the signal from all disturbing noises.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You have to do your own research when making a decision.