Key Takeaways
For crypto traders and long-term investors, knowing when to take profit or buy the dip is rarely straightforward, especially in volatile markets. On-chain analysis offers a more informed approach by examining real-time blockchain data to understand how capital is actually moving across a network.
Unlike traditional methods that rely on price patterns or speculation, on-chain analysis is grounded in transparent, tamper-proof data recorded directly on the blockchain.
On-chain analysis allows traders to logically read real-time sentiment by observing how crypto assets are being moved. During periods of panic or euphoria, this clarity becomes especially valuable for those aiming to protect capital or lock in profits.
This article provides traders and investors with a practical toolkit of on-chain metrics, offering dependable signals in a market often shaped by emotion and noise.
On-chain analysis examines blockchain data to uncover valuable insights about a cryptocurrency network’s activity, user behavior, and overall health. By analyzing transaction data, wallet balances, exchange reserves, and many other on-chain metrics, traders and investors can better understand market sentiment, identify trading opportunities, and assess the network’s security.
Different kinds of data can be extracted from the blockchain, making on-chain analysis an important tool when forecasting price movement and market sentiment. Every Bitcoin transfer leaves a trace on this ledger, no matter how small and on-chain analysis is the art of interpreting these movements to gain insights into Bitcoin’s network and its participants.
Unlike technical analysis, which focuses on price patterns, indicators, and support or resistance levels, on-chain analysis offers a transparent, data-driven view of actual blockchain activity. That said, both approaches can complement each other to identify market trends.
On-chain analysis is the process of converting raw blockchain data into meaningful financial signals. By studying on-chain charts, investors, traders and miners can identify market trends, monitor investor sentiment, and observe how capital flows across a blockchain network.
On-chain data is recorded by nodes, but analysis typically uses processed datasets from blockchain explorers or analytics platforms. These nodes continuously record real-time data, including wallet activity, transaction history, smart contract execution, and network fees.
By processing this stream of blockchain data, these tools reveal behavioral patterns across the network. For example, the MVRV Z-Score compares market value to realized value to identify whether Bitcoin is overvalued or undervalued. Other indicators like exchange inflows/outflows, active address counts, and HODL waves provide signals of market sentiment and asset flow.
To monitor blockchain networks effectively, traders and analysts rely on specialized platforms that convert raw on-chain data into actionable insights.
To effectively monitor on-chain analysis, using the right tools is necessary. Numerous online platforms and software solutions offer reliable access to on-chain data, making it easier to explore blockchain metrics, conduct analysis, and make informed decisions. Some of the most widely used platforms include:
The total amount of Bitcoin reserves held on all exchanges measures the potential coins to sell on the market. This means the exchange reserve is a collective measure of potential coins ready to be sold on exchanges.
From mid-2024 to May 2025, Bitcoin exchange reserves declined steadily, as shown in the CryptoQuant chart, signaling ongoing outflows into cold storage and long-term accumulation. By April 29, 2025, reserves dropped below 2.5 million BTC, down from 3.4 million in 2022, meaning significantly less Bitcoin was available for sale.
With fewer coins available for sale, markets become highly responsive to buy-side demand. Even moderate interest can lift prices sharply, as buyers compete for a limited supply. In May 2025, Bitcoin broke past $100,000 while reserves hit a two-year low, highlighting how supply constraints can intensify upward moves during optimistic market conditions.
The same principle applies to Ethereum’s exchange reserves for assessing sell pressure. These reserves represent the total amount of Ether available for sale on exchanges, clearly indicating potential selling activity.
Ethereum’s exchange reserves have flattened since mid-2024, following an earlier drawdown. As of April 2025, balances hovered around 19.6 million ETH, a slight increase, signaling that while ETH isn’t showing Bitcoin-level scarcity, consistent outflows have paused.
This stabilization suggests holders may be waiting for clearer market direction before acting. A flattening of the exchange reserves could also imply preparations for profit-taking on price rallies. If reserves begin rising, it may signal growing sell pressure. However, renewed outflows would point to accumulation and long-term confidence in Ethereum’s value.
Transaction count measures the total number of confirmed transactions recorded on a blockchain within a given period. In both Bitcoin and Ethereum networks, a sustained rise in transaction count is often interpreted as a proxy for increasing user activity and network demand.
In public blockchains like Bitcoin and Ethereum, an uptick in daily transaction count suggests that the network is processing a higher volume of interactions, whether transfers, smart contract executions, or staking operations.
An increase in transaction counts typically reflects heightened usage and may signal growing adoption, particularly when aligned with rising prices or broader market participation. Conversely, declining transaction activity might indicate market fatigue or lower user engagement, especially during consolidations or bear markets.
Analyzing wallet balances can reveal accumulation or distribution patterns among investors. Large wallet movements can be indicative of market sentiment. While not perfect, trends in wallet growth can hint at user adoption, though one user may control multiple addresses.
Beyond exchange balances and transaction counts, the following metrics help map supply conditions and participant behavior, offering insight into whether the market is leaning toward accumulation, distribution, or incoming volatility.
After examining exchange reserves and transaction data, the next layer of insight comes from on-chain sentiment and valuation metrics. Tools like the Pi Cycle Top, NUPL, and MVRV-Z Score track emotional phases, such as fear, greed, euphoria, and optimism, often aligning with market tops or bottoms.
These indicators bridge behavioral psychology with blockchain data, helping traders and investors time entries and exits more effectively by reducing emotional bias and aligning with broader market sentiment.
The Pi Cycle Top Indicator is designed to identify Bitcoin’s market cycle peaks by signaling when price may be approaching an all-time high ahead of a downturn.
The Pi Cycle Top Indicator has, in past BTC cycles, been a reasonably consistent tool for forecasting the peaks of Bitcoin’s cycle high and low, aiming to predict when the cryptocurrency’s price is likely to reach an all-time high before undergoing a downturn.
The Pi Cycle Top Indicator relies on the relationship between two specific moving averages:
Historically, when the 111-day SMA crosses above the 2×350-day EMA, it has aligned closely with Bitcoin’s major market cycle tops, often within a few days.
This crossover reflects price acceleration and when the shorter-term average sharply rises and overtakes the long-term average, this in the past, suggested the market is overheating and a top may be near. As of May 30, 2025, the Pi Cycle Top oscillator reads 0.24 , historically, values near 1 have aligned with market cycle tops..
The MVRV Z-score is one of the most important key on-chain metrics that helps identify periods when Bitcoin is overvalued or undervalued relative to its historical cost basis. It compares Bitcoin’s market value, current price times circulating supply, to its realized value, the average price at which all coins were last moved, then applies a standard deviation (Z-score) to normalize extremes.
When the z-score registers a level between 7 to 9, it signals the peak of market cycles. Conversely, when the z-score registers a point at -0.10 or less, it indicates that the market value is considerably lower than the realized value, which historically leads to substantial returns for those who bought Bitcoin during such periods.
The Net Unrealized Profit/Loss (NUPL) is an on-chain indicator that captures the collective sentiment of the crypto market by comparing the unrealized profits and losses held by investors at a given time. When the majority of coins are held in profit, sentiment shifts toward Greed and Euphoria. When most are held at a loss, the market tends to reflect Fear or Capitulation.
The above NUPL metric chart provides valuable insights for forecasting Bitcoin’s future price movements, identifying the level of sentiment at any given time. Historically, the most lucrative times to sell are when the chart enters the Euphoria / Greed mark.
This metric is particularly useful for investors and traders aiming to time exits and entries based on collective market psychology, allowing them to separate personal emotions from broader sentiment trends. Historically, NUPL reaching the Euphoria/Greed zone has often preceded market tops, indicating that prices are near a local or cycle peak.
While the Pi Cycle Top, MVRV-Z Score, and NUPL are among the most widely followed sentiment-driven metrics, several complementary tools offer further nuance when assessing cycle tops, bottoms, and crowd psychology:
For investors still questioning Bitcoin’s legitimacy or staying power, one of the clearest validations lies not in price charts but in network security and computational power . Bitcoin’s hashrate, the total computational power dedicated to mining and securing the network, has been growing exponentially for years, as indicated in the chart below.
This relentless increase in hashrate reflects a competitive arms race among miners. More capital, infrastructure, and energy are being deployed to secure the network. This suggests a straightforward truth, if more resources are being committed to protect Bitcoin, then the network must hold real value.
Hashrate isn’t just a one-off metric, hashrate is a direct signal of Bitcoin’s resilience. A rising hashrate makes the network more resistant to attacks, increases decentralization, and confirms that long-term stakeholders believe in Bitcoin’s continued viability.
When evaluating Bitcoin’s resilience and long-term viability, it helps to look beyond price and consider how secure the network really is. Fortunately, the blockchain itself offers quantifiable, on-chain indicators that track the health and integrity of Bitcoin’s security architecture.
Below are three key metrics, apart from hashrate, that offer insight into the strength of the network over time:
Here are some strategies to consider when using on-chain analysis to develop trading or investing strategies:
On-chain data helps traders and investors make better-informed decisions by offering direct insights into blockchain activity. Here are the key benefits:
On-chain analysis is a valuable tool for gaining insights into a specific blockchain, but it has its limitations. Here are some of the key limitations when using on-chain analysis data:
On-chain analysis is a helpful tool to gain insights into blockchain-based assets, like Bitcoin and Ethereum, by examining various forms of data. It offers advantages such as identifying trading signals and improving timing.
However, it has limitations, including a lack of consideration for external factors and potential data manipulation. To use it effectively, it should complement other analyses and be applied with a holistic market understanding.
Ethereum could surpass Bitcoin in market cap (a “flippening”) if its network usage, smart contract dominance, and investor demand continue to grow faster. However, Bitcoin still leads as a store of value and reserve asset, so it depends on which use case the market prioritizes.
Bitcoin transactions typically take between 10 and 60 minutes to confirm, depending on network congestion and the transaction fee paid. Higher fees generally result in faster confirmations, as miners prioritize transactions that offer better rewards.
If you lose your private keys or seed phrase and don’t have a secure backup, your crypto is effectively lost forever. Unlike banks, there’s no recovery mechanism, highlighting the importance of storing backups offline and in multiple safe locations.