The Ultimate On-Chain Data Analysis Beginners Guide: How to Trade with On-Chain Signals

The Ultimate On-Chain Data Analysis Beginners Guide: How to Trade with On-Chain Signals

Previously, we’ve covered the On-Chain Data Basics; I hope you’ve grasped the fundamental ideas of the crypto market’s demand, supply, and volatility. And this time, we’re going to share more about how we can invest wisely with on-chain signals.

We’ll discuss the key indicators you should look at and the best strategies to use data as your ally in the crypto game. Whether you’re an experienced trader or a new investor, this guide will arm you with the know-how to navigate better in the crypto market.

On-Chain Data Analysis Strategy Is for Long-Term Investing

The first principle you need to know is that a price doesn’t always reflect an asset’s true value. Bitcoin might get pumped to the moon or dumped back onto the earth in a day. (Yeah, crypto is quite moody!)

That’s why you want to make sure to focus on the big picture and not get caught up in the daily fluctuations and noise. Here is where analyzing on-chain data comes into play: it gives an overview of the market situation and helps you make informed decisions from a broader perspective.

On-Chain Data Metrics: Fair Value Indicators

To take advantage of the market swing, fair value indicators will tell you when BTC is overpriced or underpriced from a long-term perspective. Here are a few of them.

Market-Value-to-Realized-Value (MVRV): Find The BTC True Value

MVRV = Market Capitalization / Realized Capitalization

MVRV reflects an asset’s market-value-to-realized-value (MVRV). Market capitalization is calculated with the token’s total circulating supply at the current market price, while realized capitalization is calculated with value based on the price when a token was last moved. MVRV can be used as a metric to show whether the price is above or below a fair value.

  • If MVRV is above 1, it indicates BTC is overvalued;
  • If MVRV is below 1, it indicates BTC is undervalued.
Valuable Capital logo
MoneySmart Exclusive
Min. Commission Fee US Stocks
Commission Fee HK Stocks
Min. Account Funding
MoneySmart Exclusive:

New users who successfully open account via MoneySmart with promo code「32BR」, fulfilling specific requirements and submit the reward claim can get up to HK$2,815 rewards!

【Reward 1️⃣】Successfully open account and deposit ≥ HK$10,000 to get the rewards below:

  • Acer 20" luggage (value HK$1,298)  / HK$800 Apple Gift Card / PARKnSHOP E-Vouchers

【Reward 2️⃣】Deposit ≥ HK$10,000 and no withdrawal for 90 days to get the rewards below:

  • Apple HomePod mini (value HK$749) / HK$700 Apple Gift Card / PARKnSHOP E-Vouchers

Open accounts and first deposit ≥HK$10,000 can get:
1. HK$200 trading cash coupon*
2. 30-day HK Stock LV1 streaming quotation*+ HK stocks $0 commission+ US stocks 180 days $0 Commissions Card*

*Terms and Conditions apply.

Valid until 30 Apr 2024

Long-Term Holder (LTH) and Short-Term Holder (STH) Supply

The metrics of long-term holders (LTH) and short-term holders (STH) show the distribution of BTC with different holding periods. On the chart, you can see the LTH is represented by a blue line, and the STH is represented by an orange line.

The lines show the preference for holding BTC. If the price rises to the point where long-term holders want to sell BTC, the blue line will fall.

  • If you’re looking for an entry for long-term holding, you may enter when the LTH line is in an upward trend while the STH line is dropping. That means holders are not selling their BTC at the current price, and they hold BTC for a longer time.
  • If you see the blue line heading south, that means LTH starts to sell their BTC, which can be seen as a bearish signal.

Network Value to Traction (NVT) Ratio

NVT = Market Capitalization / Transfer Volume

NVT ratio describes the relationship between market cap and transfer volume, which is similar to the P/E ratio in equity analysis. It is based on the premise that the transaction volume determines the network value. The more transactions in the network, the higher the value of the network.

  • A rising NVT ratio means investors price BTC at a premium, which indicates positive investor sentiment about the market’s future, and vice versa.
  • A flat NVT ratio line means an equilibrium growth of market cap and transfer volume.
Interactive Brokers logo
Online Promo
Min. Commission Fee US Stocks
Min. Commission Fee HK Stocks
Min. Funding

Net Unrealized Profit and Loss (NUPL)

Net Unrealized Profit and Loss = BTC Market Value – Purchased Price

Net Unrealized Profit and Loss (NUPL) is the difference between the market value and the BTC purchased price, which is the unrealized gain or loss in simple terms. NUPL is the most used metric by on-chain analysts. It’s a great indicator to check if the market is overheating.

  • When a large number of investors are in unrealized profit, it indicates a potential selling action.
  • When NUPL drops, that means a capitulation, with sellers rushing to sell BTC at a loss.

Stock-to-flow ratio

Stock-to-flow ratio = circulating supply / newly supplied coins per year

Stock-to-flow ratio is a measure of BTC scarcity, specifically how much of the BTC is available relative to the rate at which BTC is produced.

Plan B, the well-known pseudonym of BTC Stock-To-Flow (S2F) model creator, published his model in a 2019 Medium article.The model is based on the stock-to-flow ratio idea to predict BTC price.

  • The higher the ratio, the more scarce the token and the higher its value.
  • Usually, a stock-to-flow ratio above 50 or more implies extreme relative scarcity, suggesting that the asset’s worth will also rise.
Syfe  logo
Minimum investment amount
Annual Management Fee
Minimum First Funding Amount

On-Chain Data Metrics: Blockchain Explorer

Blockchain Explorer is a great tool for checking on-chain transactions, but there’s more you can do with it!

Tokens distribution

If you’re considering investing in a particular blockchain, you can always check the token distribution. A healthy token distribution should be even among the top 100 wallets. In that case, there is a lower possibility of one or more holders dumping the tokens.

Total market capitalization

To see how big the market value is, we can check the total market capitalization, which is the total asset price. Here is the formula:

Total market capitalization = Assets Price x Circulating Supply

Total market capitalization is widely used to determine the size of a crypto project. The larger the crypto’s market cap, the less volatile it is. Here are the 3 main sizes of market cap:

Large-cap cryptos: larger than $10 billion (e.g.BTC/ETH)
Mid-cap cryptos: $1 billion and $10 billion (e.g. DOT/BNB/MATIC)
Low-cap crypto: less than $1 billion

  • Use it to determine a project’s potential growth and volatility. A small project is expected to experience great potential growth but large volatility.

On-Chain Data Metrics: Transfer Volume

Transfer volume is the total amount of tokens successfully transferred on-chain. A high transfer volume can indicate the danger of capitulation ahead. The two major capitulations triggered by sell-large off and Luna Collapse this year, we can see that they also came with a high transfer volume.

  • Transfer volume can be seen as the momentum of price action. If transfer volume is high during a period of price movement, either going up or down, that’s a sign of continuing movement.

It’s important to note that transfer volume should be used in conjunction with other technical and fundamental analysis tools, as it is just one of many factors that can impact the price of Bitcoin.

Tweet Alert of Big Movement

On-chain data gives a huge advantage to crypto traders because any big transaction movements are monitored and reported. When that happens, you will find tweets talking about the “Whale Movement.” You may find them under “Whale Alert” on Twitter.


On-chain data analysis is a helpful tool for traders and investors to make more informed decisions when investing in the cryptocurrency market. It offers valuable insight into market trends, movements, and activity that can help you spot opportunities.

However, it’s important to remember that on-chain data analysis is just one piece of the puzzle. Be sure to consider other factors, such as fundamental news and technological advances, before making any decisions.

And feel free to bookmark this post and ask us any questions about crypto or on-chain analysis on our Instagram, LinkedIn, and Facebook! We’ll be happy to help as your investment companion!

Happy investing!

Investment involves risks. The information on this website is for educational purposes only and should not be construed as investment advice or recommendations. Therefore, it should not be considered as the basis for making any investment decisions or taking any investment actions.

Looking for more personal finance tips? Let’s check out the MoneySmart blog!