On-chain indicator refers to a type of metric or data point that provides insights into the activities occurring on a blockchain. Since cryptocurrencies operate on decentralized blockchains, where transactions and other activities are recorded and visible to the public, on-chain indicators offer valuable information about the behavior of participants within the network.
On-chain indicators can be used to analyze various aspects of the cryptocurrency ecosystem, such as user adoption, network activity, trading patterns, and more. These indicators are often utilized by analysts, traders, and researchers to make informed decisions and predictions about the market.
Active addresses refer to the number of unique addresses that have been involved in at least one transaction on the blockchain within a specific time frame. An "address" in the context of cryptocurrencies is a string of characters that represents a location on the blockchain where funds can be sent or received.
The concept of active addresses is used to gauge the level of user activity and interest within a particular cryptocurrency network. It's important to note that the number of active addresses is not necessarily equivalent to the number of individuals using the cryptocurrency, as one person or entity could control multiple addresses.
User Adoption: An increase in the number of active addresses over time might suggest growing adoption of the cryptocurrency. It indicates that more people or entities are participating in transactions, which can be indicative of increased interest in using the cryptocurrency for various purposes.
Network Activity: A higher number of active addresses indicates a higher level of transactional activity occurring on the blockchain. This could be due to trading, transferring assets, interacting with decentralized applications (DApps), or other activities.
Market Sentiment: Active addresses can reflect changes in market sentiment. A sudden spike or decline in active addresses might be related to news events, market trends, or shifts in investor behavior.
Usage Patterns: Analyzing the patterns of active addresses over time can reveal trends in how the cryptocurrency is being used. For example, increased activity during certain times of the day might indicate geographic or market-specific usage patterns.
Comparative Analysis : Comparing the number of active addresses of one cryptocurrency to another can offer insights into which cryptocurrency is experiencing higher levels of user engagement and adoption.
On-chain fee indicators are metrics used to analyze the fees associated with transactions on a blockchain network. These indicators provide insights into the cost of conducting transactions within the network and can offer valuable information about the demand for block space and the overall health of the network.
Average Transaction Fee : This indicator calculates the average fee paid by users for transactions on the blockchain over a specific time period. It provides a general idea of the cost of sending transactions within the network.
Median Transaction Fee : Similar to the average fee, the median transaction fee calculates the middle value of all transaction fees within a given time period. It's less affected by extreme outliers and can provide a more representative view of typical fee levels.
Fee Distribution : This indicator shows the distribution of fees across various transactions. It can reveal whether a significant portion of users is paying high fees for priority or whether most transactions are being processed with lower fees.
Fee Trends : Analyzing fee trends over time can show how fees have changed in response to network congestion, market demand, or changes in network protocols.
Fee vs. Transaction Count : Comparing fee levels to the number of transactions can help identify whether increased fees are due to higher network activity or other factors.
Network Congestion : High average or median fees often indicate network congestion, where the demand for block space exceeds its supply. This could be due to increased usage, trading activity, or events that drive users to conduct transactions.
User Behavior : Changes in fee levels can influence user behavior. If fees are very high, users might delay or bundle transactions to save on costs.
Market Sentiment : Rapid increases in fees might indicate sudden spikes in demand or heightened market activity. Conversely, significantly low fees might suggest reduced network usage or low market activity.
Protocol Changes : Some blockchains have mechanisms that adjust fees based on network conditions. Monitoring fee levels can help assess the effectiveness of these mechanisms.
Economic Indicators : In some cases, high fees might be seen as a positive economic indicator, as it demonstrates that users are willing to pay for priority.
Market Value to Realized Value, is a cryptocurrency on-chain indicator that is used to assess the potential overvaluation or undervaluation of a cryptocurrency's current price relative to its historical "realized" price.
Here's a breakdown of how MVRV works:
Market Value (MV) : The market value is the current total market capitalization of a cryptocurrency. It is calculated by multiplying the current price of the cryptocurrency by its total circulating supply.
Realized Value (RV) : The realized value is an estimation of the total value of all coins in circulation based on the price at which they were last moved. In other words, it takes into account the price at which coins were last traded, indicating the price at which a majority of market participants acquired their coins. This value can help provide a sense of the average cost basis for holders.
MVRV Ratio : The MVRV ratio is the ratio of the current market value (MV) to the realized value (RV) of a cryptocurrency. Mathematically, it's calculated as: MVRV = MV / RV.
Interpretation : The MVRV ratio is often used to gauge the market sentiment and potential overbought or oversold conditions within the cryptocurrency market.
The SOPR (Spent Output Profit Ratio) is an on-chain metric used in the cryptocurrency space to analyze the profitability of coins that are being transacted. It provides insights into whether the participants in the market are selling at a profit or a loss on average.
Here's how SOPR works:
Spent Output : An output in a cryptocurrency transaction is essentially the coins being sent from one address to another. When an output is "spent," it means that those coins are being used in a transaction to send to a different address.
Profit Ratio : The profit ratio in SOPR refers to the difference between the current price of a coin and the price at which the coins were acquired (the "cost basis"). If the current price is higher than the cost basis, then the coins being spent are associated with a profit. If the current price is lower, then they are associated with a loss.
The SOPR is calculated by taking the ratio of the total value of coins that are being transacted at a profit to the total value of coins that are being transacted (both at a profit and at a loss) in a given time frame.
Mathematically, SOPR is calculated as:
SOPR = Sum of (Profitable Spent Outputs) / Sum of (All Spent Outputs)
SOPR can be used to identify potential trend shifts and market sentiment changes. For example, if the SOPR has been above 1 for an extended period and then drops below 1, it might suggest a shift from a bullish to a bearish sentiment as market participants start to sell at a loss.
The "Puell Multiple" is a cryptocurrency on-chain metric used to analyze and understand the supply and demand dynamics of the Bitcoin network. It focuses specifically on the mining sector of the cryptocurrency ecosystem and provides insights into the profitability of Bitcoin miners and their impact on the market.
The Puell Multiple is calculated by dividing the daily issuance of new Bitcoins (in USD) by the 365-day moving average of the daily issuance. In simpler terms, it compares the current revenue earned by miners (in terms of newly minted Bitcoins) to their long-term average revenue. This metric is expressed in multiples, and a higher Puell Multiple indicates that miners are earning more than their average revenue, while a lower value suggests the opposite.
Key points to understand about the Puell Multiple:
Miner Revenue and Market Cycles : The Puell Multiple is often used to identify potential market cycles in the Bitcoin market. High values of the Puell Multiple might indicate that miners are earning significant revenue compared to their historical average. This could suggest that miners are selling fewer Bitcoins, possibly due to market speculation that prices will rise. Conversely, low values of the Puell Multiple might indicate a time when miners are earning less than their average revenue, which could lead to increased selling pressure.
Profitability and Mining Difficulty : Bitcoin mining is competitive, and the network adjusts the mining difficulty periodically to ensure that blocks are mined approximately every 10 minutes. When the Puell Multiple is high, indicating higher miner revenue, some miners might choose to sell fewer coins and hold them, potentially reducing selling pressure and impacting the overall supply-demand dynamics.
Historical Patterns : The Puell Multiple has shown correlations with significant market events in the past. It has been observed that during previous market tops and bottoms, the Puell Multiple exhibited distinctive patterns. These patterns can help traders and analysts identify potential turning points in the market.
VWAP stands for "Volume-Weighted Average Price." It is a technical indicator commonly used in trading and investing to provide insight into the average price at which an asset, has traded over a specific period of time, weighted by the trading volume during that period.
Here's how the VWAP indicator works:
Calculation of VWAP : To calculate the VWAP, you first multiply the price of each trade by its corresponding trading volume to get the trade's "volume-weighted price." Then, you sum up all these volume-weighted prices for a specific time period (usually intraday) and divide by the total trading volume during that period. This gives you the VWAP value for that period.
VWAP = Sum of (Price × Volume) / Total Volume
Time Frames : VWAP is typically calculated over intraday time frames, such as one minute, five minutes, or any other chosen period. Traders often use VWAP for the trading day as it progresses, recalculating it at the start of each new period.
These are just a few examples of the many on-chain indicators that analysts use to understand the behavior of participants within a cryptocurrency ecosystem. By analyzing these indicators alongside other market and fundamental factors, analysts can form a more comprehensive view of the market's dynamics and trends.