Content
Disclaimer: Educational content only. This is not investment advice. Metrics can help structure thinking, but they are not guarantees and often conflict across timeframes.
Executive Summary
On‑chain data shows what wallets and smart contracts actually do—how coins move, where supply sits, and when participants take profits or losses. For beginners, focus on a compact set of metrics, watch their trends (not single prints), and combine them with liquidity/derivatives context.
1) Supply & Holder Structure
Long‑Term vs Short‑Term Holder Supply (LTH/STH)
What it is: Coins held beyond a threshold (e.g., 155 days = LTH) vs recently moved coins (STH).
Why it matters: Rising LTH supply indicates conviction and reduced sell pressure; rising STH supply can increase near‑term volatility.
Watch for: LTH distribution into strength (top formation) vs LTH accumulation in drawdowns (base formation).
Realized Cap & Cost Basis Bands
What it is: Sum of coin values at their last moved price; cost basis proxies (e.g., LTH vs STH realized price).
Why it matters: When spot trades far above realized bands, risk of mean reversion grows; deep moves below can mark capitulation/accumulation zones.
RHODL / Age‑Band Dynamics (advanced)
What it is: Ratio of young vs old coin value; age‑band flows.
Why it matters: Surges in young coin value often coincide with late‑stage euphoria; older coins moving after long dormancy can signal distribution.
2) Profit‑Taking & Spending Behavior
MVRV (Market Value / Realized Value)
What it is: How far price is above/below the base cost of coins on average.
Interpretation: High MVRV = more unrealized profit → higher risk of distribution; Low/negative MVRV = stress/capitulation zones.
Trap: It is not a timing tool; extended highs/lows can persist.
SOPR (Spent Output Profit Ratio)
What it is: Average profit/loss on coins moved on a given day (>1 = profit taking, <1 = loss realization).
Interpretation: Rejections near SOPR≈1 during downtrends show sell‑the‑rally behavior; sustained >1 during uptrends shows dip‑buying resilience.
Realized Profits/Losses
What it is: Dollar value of gains/losses locked in on‑chain.
Interpretation: Spikes in realized losses often cluster near local or cyclical lows (capitulation). Profit spikes during euphoria can precede cooling.
3) Liquidity & Exchange Activity
Exchange Balances & Netflows
What it is: Coins held on exchanges and net deposits/withdrawals.
Interpretation: Declining balances imply tighter supply for sale; sharp inflows can precede sell pressure; outflows can reflect accumulation/self‑custody.
Stablecoin Supply & Exchange Dry Powder
What it is: Total stablecoins in circulation and on exchanges.
Interpretation: Rising supply on exchanges signals potential buying power; falling supply can drain bid support.
Trap: Stablecoin growth can lag or reflect rotation between venues; treat as a confirmation, not a trigger.
Fees & Congestion
What it is: Transaction fees reflect demand for block space.
Interpretation: Rising fees often accompany risk‑on phases; collapsing fees after hype may signal cooling—unless users migrate to L2s.
4) Security & Miner Health (for PoW chains)
Hash Rate & Difficulty
What it is: Network computing power and its automatic adjustment.
Interpretation: Uptrends reflect miner confidence; sudden drops can indicate stress or regional disruptions.
Puell Multiple (advanced): Miner revenue vs long‑term average—extremes can mark stress (capitulation risk) or overheated conditions.
5) Derivatives Context (Do Not Ignore)
Open Interest (OI)
What it is: Total outstanding futures/perps positions.
Interpretation: Rising OI + flat price = coiled spring; combined with funding can hint at positioning imbalance.
Funding Rate & Basis
What it is: Cost to hold perp/futures vs spot.
Interpretation: Persistently high positive funding = crowded longs (vulnerable to long squeezes); negative funding = stress or bear phases (ripe for short squeezes when catalysts appear).
Liquidation Heatmaps (advanced)
What it is: Estimated clusters of forced‑exit prices.
Interpretation: Markets often “seek” high‑liquidation zones during volatility.
6) Putting It Together: A Simple Framework
Trend: Is price above/below major realized price bands? Are LTH accumulating or distributing?
Liquidity: Are exchange balances/stablecoin supply rising or falling? Any big net inflows to exchanges?
Behavior: Is SOPR >1 or <1 over multi‑day windows? Are realized P/L spikes indicating capitulation or euphoria?
Derivatives: Are funding and OI stretched? Is there obvious squeeze fuel?
Security/Costs: Is hash rate stable and are fees behaving logically (L1 vs L2 usage)?
If 3–4 signals align, confidence in the regime (risk‑on vs risk‑off) increases. If signals conflict, reduce conviction and size.
7) Common Traps & How to Avoid Them
Single‑metric worship: No indicator is perfect; look for confluence.
Ignoring timeframes: A bullish weekly setup can coexist with a bearish intraday picture.
Data artifacts: Exchange labeling mistakes, bridge/mint events, or custodian reshuffles can distort flows.
Survivorship bias: Backtests often look great because the worst cases are filtered out.
8) Weekly Checklist (Copy & Use)
Supply: LTH/STH supply, realized price bands.
Liquidity: Exchange balances/netflows; stablecoin supply on exchanges.
Behavior: SOPR 7‑day trend; realized P/L spikes.
Derivatives: Funding (avg/peaks), OI trend, basis vs spot.
Security/Costs: Hash rate/difficulty (PoW), L1 fees, L2 usage share.
Notes: Major events (policy, upgrades, ETF flows, listings).
Bottom Line
On‑chain is powerful when used with discipline: define a compact dashboard, track trends across supply, behavior, liquidity, and derivatives, and avoid overfitting. Consistency beats prediction—especially in volatile markets.