A Beginner’s Guide to On-chain Metrics for Crypto Investing
An increasing number of crypto investors are turning to on-chain data analysis to get a snapshot of the crypto market by examining information from the public blockchain.
On-chain analysis first emerged in 2011 with the use of the Coin Data Destroyed (CDD) metric, a means of measuring market participation, and since then, multiple new on-chain metrics have emerged.
What Are On-chain Metrics?
On-chain metrics refer to data from a blockchain ledger that can be analyzed to get a sense of market sentiment.
Blockchains are public databases, accessible to everyone that record information relating to network transactions, without revealing the identity of the parties involved.
When investing in crypto on-chain analysts review blockchain transaction data and crypto wallet balances to help determine the market trajectory.
On Chain Analysis vs Technical Analysis
Technical analysis is a method for anticipating market movements by examining metrics like asset volume and prices. In contrast, on-chain analysis extracts information from the blockchain regarding the concentration of token ownership, patterns of trading activity, exchange flows and social sentiment.
A combination of both technical analysis and on-chain analysis offers the deepest insight into current market conditions, so that you can make the right move at the right time.
Common On-chain Indicators
When investing in crypto there is a wide variety of on-chain indicators to choose from, that can help in the evaluation of blockchain activity.
Market Value to Realized Value
The Market Value to Realized Value (MVRV) forecasts Bitcoin tops and bottoms, by establishing whether the market cap is overvalued or undervalued.
Calculated by dividing the daily Market Cap by the Realized Cap, MVRV provides a simple means of assessing market profitability at any given time.
An MVRV value of 100% (or 2.0) means that if everyone sold their coins at the current price, they would receive a 100% (x2) profit. The higher the ratio, the greater the likelihood that the coin is overvalued, and investors would realize profits from selling. Conversely, a negative MVRV value suggests that the asset is “undervalued”. This means that if all coins were sold, most investors would experience losses by selling.
Exchange Flows monitor the flow of coins entering and exiting exchanges. When there are more “inflows” (the amount of a particular coin that has entered the exchange) than “outflows” (the amount of a particular coin that has left the exchange) over a given period, it can be assumed that traders are selling tokens to safeguard their gains, and this could be an early indicator of a market correction or a downturn.
Equally, when outflows are predominant, this could be a sign that buyers are sending their tokens to self-custody wallets for HODLing, which would restrict the supply on the exchanges and drive up the price.
Net Unrealized Profit or Loss
This on-chain metric determines whether the market is in an overall state of unrealized profit or loss, which is calculated by subtracting the Realized Value from the Market Value.
To reach the Net Unrealized Profit or Loss (NUPL), the Unrealized Profit or Loss is divided by the Market Cap.
If the NUPL is lower than zero then the market is holding an unrealized loss, whereas if it is above zero then the market is holding a profit.
Spent Output Profit Ratio
Another popular on-chain indicator is Spent Output Profit Ratio (SOPR), which is used to assess market sentiment and helps evaluate whether investors are currently selling at a profit or loss.
A Spent Output Profit Ratio higher than one indicates that more people are selling their tokens for a profit, whereas a ratio of less than one indicates that more people are selling their tokens for a loss.
A UTXO is a wallet balance – the amount of cryptocurrency remaining after a cryptocurrency transaction is executed. The SOPR is calculated by dividing the USD value upon UTXO creation by the USD value once the UTXO is spent.
Open Interest is a volume-based on-chain metric, used to determine interest levels.
The sum of open futures contracts, Open Interest shows how much capital is entering the market and helps forecast crypto market tops and bottoms.
This is another on-chain metric used to evaluate crypto market interest levels.
Funding rates are the payments that perpetual contract holders are required to make on a regular basis to keep their positions open. Perpetual contracts are crypto futures contracts without an expiry date.
A Simpler, Safer Alternative Methodology
While analyzing on-chain metrics can be an extremely valuable way to understand what is happening at a given time across the crypto markets, trading digital assets is never without high levels of risk and uncertainty.
In contrast, at ArbiSmart, our interest-generating wallet offers consistent, high profits, risk-free, in all market conditions, and there is zero effort involved. You don’t need to have market knowhow or spend hours in front of the screen analyzing crypto market metrics to try and anticipate market shifts and managing your investments. Instead, you can just open a savings plan and earn up to 147% a year, whichever direction the market is moving.
The EU authorized wallet, which supports 25 different FIAT and cryptocurrencies, enables you to keep funds available for withdrawal, without earning interest, or lock them in a savings plan.
The longer the timeframe for the plan the better the interest rate and there is a wide range of options, from short-term, 1 and 3-month plans to long-term, 2, 3, and 5-year plans.
Interest, which is paid out daily, can be received in three ways. Firstly, it can be sent to an available balance, separate from the capital on which it is being earned, where it is accessible at all times. Secondly, for a higher interest rate, it can be added to the locked savings balance. Lastly, for the highest rate of interest, it can be paid in RBIS and locked for the duration of the savings plan.
The interest percentage you earn is primarily based on your account level, which is determined by how much of our native token, RBIS, you own. More RBIS means a higher account level and a higher rate of interest on savings balances in Bitcoin, Euro or any other supported currency. To be eligible to earn interest on your FIAT and crypto, you need to hold a minimum of 1,000 RBIS, which places you at Beginner Level 1 account status.
While you can earn steady passive profits, keeping your funds in BTC, ETH, or SHIB, balances in RBIS earn a much higher rate of interest than balances in any other currency.
Our wallet is gaining momentum as more investors look for a way to make effortless, sky-high profits regardless of which way the market is shifting. As a result, demand for the RBIS token is climbing. Meanwhile the already restricted supply is shrinking as more tokens leave circulation and get locked in savings plans.
Demand is expected to further outpace the supply, with all the new RBIS utilities in the pipeline for launch in Q4 2022, and Q1 2023. These include a mobile app for buying, storing and exchanging crypto, an NFT marketplace, an original ArbiSmart NFT collection, a DeFi protocol offering a yield farming service with innovative gamification features, a crypto exchange and a play-to-earn metaverse with RBIS as the in-game currency.
All these new utilities will require use of RBIS, while also offering preferential terms for RBIS owners. For example, if ArbiSmart crypto exchange fees are paid in RBIS the trader will receive a discount.
Also, the utilities across the ArbiSmart ecosystem are all interconnected so holding an ArbiSmart NFT could increase a DeFi protocol user’s score resulting in a higher yield farming APY.
All these factors will boost RBIS demand, driving up the price in the months ahead. So, wallet holders will receive generous interest on savings plans, in addition to substantial capital gains on the rising token value.
In contrast to trading crypto and exposing your capital to exceptional risk on the highly volatile digital currency markets, the ArbiSmart wallet, requires no on-chain analysis, incurs zero risk and provides consistent, predictable profits that can be calculated in advance.
Open a wallet now, or to learn more about the crypto markets, including all the latest trends, tools and methodologies, check out the ArbiSmart blog.