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Many people doubt the utility of learning about on-chain metrics. You could get into cryptocurrency investments either for fun or as a serious means of managing a portfolio. Nevertheless, on-chain metrics give you an edge over the novice trader by providing insights that are actually tied directly to transactions on the network.
Traditional markets hide most of their inner workings for reasons of privacy. On the other hand, blockchain-based cryptocurrencies reveal almost all transactions to the public eye. In this respect, any third party can follow real-time data about financial conditions, investor trading patterns, and future changes in markets through various analytical techniques.
There is a problem, however: few beginners know how to review effectively. Herein are presented, in short, the critical on-chain metrics indicators that are essential for investors to track.
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NOTE: Crypto investments involve significant risk. Do not take the views mentioned here as financial advice. Please conduct thorough research before making any investment.
On-chain metrics to keep an eye on
1) Active addresses
It shows how many people are using the network. Consider active ledger entries as if they were regular participants on an online network each day. Addresses that have higher activity contribute to the overall good health of the system.
The growth in active addresses signals increasing demand, while their drop signals lowering interest or stagnation.
Lack of continued participation of individuals in a particular blockchain network likely reveals that the value of the tokens associated with them would eventually dwindle.
2) Transaction volume
What actual value is flowing through them in reality?
The transaction count represents the money moving around in the system. A high transaction rate signifies that blockchains are being actively used for payment systems, cryptocurrency exchanges, or other applications involving decentralized finance and/or non-fungible token transactions.
People should track the transaction volume because rising volume indicates strong real utility, while a low level of trading activity indicates inflated expectations, without substantial backing.
3) Inflows versus outflows
Inflows versus outflows of money into or out of the markets show whether investors are buying or selling assets. This indicator measures the flow of cryptocurrencies between central exchange platforms.
With more inflows, people are likely preparing to sell, and vice versa. Rising expenditure is a sign that investors are holding cryptocurrencies in digital wallets, indicating optimism.
4) Whales
What is happening with whale populations now? Well, the whale trade dominates a huge part of the cryptocurrency sector, and their moves significantly influence pricing decisions.
Whale signals to follow:
- Large purchases all of a sudden mean a bullish market.
- Huge sell-offs show a red flag.
- Accumulation over weeks signifies strong long-term confidence.
Whales are not required to observe anything, but they must be watched at all times.
5) MVRV
On-chain metrics like Market Value-to-Realized Value ratio (MVRV) helps investors establish whether an investment is currently overpriced or underpriced versus its intrinsic value.
High MVRV means overvalued, and a correction might happen. Low MVRV means undervalued, a good entry zone.
Among all available metrics, MVRV is considered highly dependable for the more seasoned experts in cryptocurrency.
6) The Network Valuation-to-Transactions (NVT) ratio
On-chains metrics like the NVT ratio is perhaps better known as crypto's version of the P/E ratio. It is used in financial analysis for cryptocurrencies.
A high network utilization over and above its capacity leads to an excessively large network value in comparison with actual use. A low NVT means the network is undervalued.
7) TVL ratio
A high Total Value Locked (TVL) ratio shows users trust the ecosystem. At the same time, a low Total Value Locked ratio signals that liquidity is leaking out, implying a fragile market condition.
On-chain metrics like TVL play an outstandingly important role in the assessment of platforms like Solana, Ethereum, TRON, and emerging decentralized finance systems.
8) Gas fees
Gas fees reflect network demand. High gas prices imply high demand or congestion. Meanwhile, low costs make either a very low interest in the products or require an enhanced operational model in the business framework. Investors can estimate network attractiveness by the changes in fees.
Why on-chain metrics matter to every investor
Most crypto losses are from people following hype and social media trends. However, on-chain metrics gives information that is unfiltered and auditable, taken directly off the digital ledger.
Here's a look at the advantages:
- You see real user activity.
- You understand the real demand.
- You detect trends before the crowd.
- You make less emotional FOMO decisions.
Being an expert in on-chain metrics is not necessary; anyone can make good use of off-chain indicators. Being aware of basic elements such as active address counts, whale trading activity, cross-border transaction summaries, and aggregate value locked will greatly add to your financial decisions.
