For those who are not familiar with on-chain stuff:
What is on-chain analysis?
On-chain analysis is the study of network metrics surrounding the blockchain and the capital flows moving on it. This is completely new analysis. Never before in finance we had such an asset with completely different volume analysis, because every coin is tracked and along with trading volume you can analyze the holding of that asset and how it privately changes hands.
Now let’s get down to the essential metric and what it tells
The first on-chain indicator is NVT ratio (Network Value to Transactions Ratio). NVT is the ratio of the Bitcoin Market Cap divided by the volume transmitted by the blockchain (underlying activity on the blockchain - the capital flow trough it). For the most part volume going through the blockchain is actually investment volume. NVT Signal (NVTS) is a derivative of NVT Ratio and is simply NVT ratio smoothed by 90d MA. You can look at it as an oscillator, that oscillates from high to low. Areas where it’s high - the valuation of the network is high relative to the investment flows on the blockchain. And so those tend to be indicators for a bearish activity or a bearish phase of the long-term macro movement of the market. Whenever it’s below the lower end of it, it’s saying it’s sufficient investment activity to drive the bull market.
One of the really useful things you can do if NVT is just discerning between a market top versus the bottom. And notice how amazingly accurate it’s been in doing that!
What we are seeing right now is that NVT is still pretty high, which is an argument for the bearish case. That’s what the NVT signal is saying right now. But… Seems like this metric is losing its relevancy. The reason is because more and more of the actual long term holding of investment is going to the exchanges. Since 2017 phase we started to see a lot of volume moving to the exchanges. These days NVT should be taken with a grain of salt because today exchanges are dictating a lot more of the action that’s hidden from the blockchain.
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The information given is never financial advice. Always do your own research.
very cool you writing about on-chain analysis. I have my full node and do some analysis directly. It gives me good hints which direction we will go. I call it temperature ;-) TA enhances this and gives proof and a more clear picture to possible hights or lows an. Only the timeframe is a thing driving me crazy sometimes. So eg. yesterday and today: BTC goes sideways and I asking me how long it will play like this...till Friday? I know it will go down. And I expected the first move earlier than yesterday. How do you solve this and predict the timing?
CryptoBullet
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@otternose, Thank you! Yeah, today there are few authors writing anything about on-chain data.
Cool that you are running a node.
CryptoBullet
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@otternose, Regarding timing: I would pay close attention to today's FED meeting and descision on the interest rates. And action can be expected near Bakkt launch on Sept. 23
otternose
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@CryptoBullet, Yes. That "surroundings" I watch too. But I am unsure how this Bakkt thing will play out. It can trigger both directions - so is my feeling.
Samoto
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@CryptoBullet, I propose looking at BTC dominance also. I was clear there was a lower low here. So there are only 2 scenarios for dominance to fall. Alts grow more or fall less. Since BTC dip would take down the alts also it had to go sideway until alts push was happening.
At the moment, BTC is much better alternative than alts in a short term timeframe.
kellydianerangel
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@otternose, how do i get the on chain graph on the bitstamp chart?
Yuriy_Bishko
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"These days NVT should be taken with a grain of salt because today exchanges are dictating a lot more of the action that’s hidden from the blockchain" agree with you)