On-chain Analysis of Bitcoin Bull Run

Written by Edward Gonzales

March 1, 2021

Where do the on-chain Cycles Take Bitcoin in 2021? 

Trying to call the “top” or trying to figure out how high an asset will actually go is one that many try to do but one that is difficult to achieve. As we have entered completely uncharted price zones, a price analysis simply will not cut it. All major resistances have already been broken. Trading such a market is risky, as there are no past referral points to attempt to structure changes.

However, on-chain analysis helps us figure that out. It is clear that markets are based on human psychology – as at the end of the day, price is determined by how many humans want to buy/sell a certain asset.

On-chain Analysis

Most traders use technical analysis to plan their trades. There is nothing wrong with this methodology, however it is not sufficient to analyze an asset solely off of technical indicators. While price action is the ultimate source of information, there are other sources of information to analyze as well. A lot of traders use on-chain information to gain perspective on the market. This type of fundamental observation is referred to as on-chain analysis. 

Blockchain technology is basically a storage of recorded information that can not be corrupted. You can learn more about blockchain technology here. Transactions recorded on the blockchain can not be altered or fabricated – therefore the data is undeniable. Traders and investors examine information on-chain to form ideas about future price movements. Many traditional assets like stocks or bonds do not have such information available. Combining this information with technical analysis can create a better picture for traders/investors.

There are such things that can be noted with cryptocurrency such as “asset distribution.” The amount of Bitcoins to be produced is limited to just 21 million. It can be confirmed on blockchain information where these coins sit are where they are going to. Holders of Bitcoin keep them in what is known as a “coin wallet”. Some of these “wallets” are on exchanges and some of these wallets are offline. No matter which scenario, these coins can be identified by their “wallet address”. With Bitcoin, you can see major coin holders’ activity and where they transfer their coins. This isn’t always indicative of the coin holders’ intentions, but it definitely affects the market when say 100-1000 Bitcoin are moved from wallet to wallet. These transactions do not go unnoticed. For example, someone who invested in Bitcoin early on could be selling a large chunk of their Bitcoin to an exchange owner for his exchange. A movement like this could cause a market sell-off. 

Another observation stemming from the same source of information is holding times. You can see how long a wallet has been inactive which can be indicative of a few things. Since Bitcoin is still young, it is not exactly possible to determine all of this information accurately. Addresses that have been inactive for ten years or greater could be for a number of reasons. They are obviously far in profits and might be waiting for higher price movements. They could have lost their sensitive security information or lost their “seed” – which is a private access code to protect coins. Or, unfortunately, in reality some of these wallet address owners could have lost their life in the last ten years. Based on these variables, it is difficult to actually portray who is long term investing and who is no longer tending their wallets. What does spark interest and helps speculators make decisions is sudden activity. When one of those inactive wallet addresses makes a transaction after a long period of time it is often observed by a few and relayed to the many. These sudden movements can affect the market negatively or positively based on market conditions at the time of the transaction. 

The most reliable source of on-chain information comes from “nodes” which help the cryptocurrency networks operate. There are different requirements for each cryptocurrency project in order to be a node operator. Basically, a node stores ledger information and verifies transactions to make sure that the network is operating honestly and by the rules. Running a node gives you access to the information quicker and more accurately than a third-party website. On some of these third-party websites information is delayed or inaccurate. If you are a major investor, you might want to look into the additional benefits of running a node.

What On-Chain Analysis Looks Like

Before the Bitcoin pullback from $56,000 we could see a few things that were showing that the asset was overpriced and due for a pullback. For example, below we can see a healthy difference between the amount of investors who are making a “profit” or “in the money” and those who are making a loss “out of the money”. Before the pullback, 99% of addresses were making profit, showing that the market was overheated and needed a pullback.

We can also see that the amount of addresses who have been holding Bitcoin for less than a month reached an all year high in February. This can indicate a growth in retail/short term traders FOMO’ing due to the rise in mainstream popularity of Bitcoin. Furthermore, as more institutions get involved alongside the launch of the CME futures, the increase in short term interest in cryptocurrencies heavily increases. Therefore, leading to the market becoming more speculative and volatile than usual – which usually does not end so well for the late entrants as we have seen with now a million BTC addresses at a loss.

Source: IntoTheBlock


There’s a lot of information that can lead to a fundamental on-chain analysis of Bitcoin. To rely on any one source of information to try and predict uncharted price movements is absurd. It is advised to compile information and multiple indicators to find quality trades and quality investments. To look at one time frame or one source of information is blind investing. If you are investing without doing your own research, there is a 50/50 chance you will be profitable. Those odds aren’t bad, and no matter what you will never change them. Your trade will either be right or wrong. However, you can help yourself to become more consistently profitable by observing technical data alongside on-chain data. If you would like to learn more about cryptocurrency feel free to check out our website here. We have plenty of free resources available as well as organized course materials at very affordable prices. 

Due Diligence

Any advice or information in this publication is general advice only – it does not take into account your personal circumstances. Please do not trade or invest based solely on this information. By viewing any material or using the information within this publication you understand that this is general education material and you can not hold any person or entity responsible for loss or damages resulting from the content or general advice provided here. Trading cryptocurrency has potential rewards, but also potential risks. You must be aware of the risks and be willing to accept them in order to invest in the markets. Only trade with funds you can afford to lose. This publication is neither a solicitation nor an offer to buy/sell cryptocurrency or other financial assets. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in any material on this website. The past performance of any trading system or methodology is not necessarily indicative of future results.

Written by Rodrick Chattaika & Edward Gonzales © Crypto University 2021

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