Cryptocurrency trading and investing have evolved significantly over the years, and with the rise of decentralized finance (DeFi) and non-fungible tokens (NFTs), understanding the movements and behavior of blockchain assets has become more critical than ever.

On-chain analysis, a method of examining and utilizing blockchain data, is at the forefront of this evolution. In this deep dive, we'll explore the world of on-chain analytics, how it works, and why it's a game-changer for crypto traders and researchers.

What the experts say… 💬

Insights from Twitter Space on Onchain Analytics hosted by Symbiote 

We recently hosted Vijay from Bitscrunch for a super insightful discussion on “OnChain Analytics -  devil lies in the details”…here are some of the takeaways.

• 🌐 Transparent and clean analytics are seen as crucial for the widespread adoption of cryptocurrencies.

• 🔍 The conversation delved into the role of analytics in combating scams and detecting money laundering activities within the crypto space.

• 📈 BitsCrunch was introduced as a company actively providing analytics to support regulatory efforts in the crypto industry.

  • 🤝 Collaboration was highlighted with well-known firms such as EY, KPMG, Accenture, and acknowledgment from Binance as an emerging AI plus crypto company in 2023.

  •  🏦 The decision to establish headquarters in Germany was explained, citing its crypto-friendly environment and robust regulatory framework.

  • 🛠️ "Our tools aim to address challenges in tracking money laundering, ensuring a clean and transparent crypto space." - Vijay

• 💼 Challenges related to tracking money laundering, particularly across different geographies, were acknowledged.

Unveiling Blockchain Secrets ㊙️ 

Blockchain Data Unveiled: 🔎 

Blockchain, the foundational technology behind cryptocurrencies, acts as a public and immutable ledger. It records crucial data like wallet addresses, transaction amounts, contract addresses, timestamps, and metadata.

Unlocking Insights: 🔐 

On-chain analysis transforms raw blockchain data into actionable insights. It offers a window into who holds what tokens, where funds move, and the overall activity within a blockchain ecosystem. In essence, it provides a treasure trove of economic data to inform trading and decision-making.

"In crypto, transparent and clean analytics drive mass adoption; it's the key to overcoming barriers.🌐" - Vijay, Bitscrunch in the Twitter Space

Building Blocks of On-Chain Analysis 🧱 

On-chain analysis takes various forms, each offering unique insights for traders/analysts. The two most important types are:

a. Wallet Holdings 🧧 

• Public Token Holdings: Unlike traditional financial systems, blockchain data is public. Wallet addresses and their token holdings are visible to anyone.

• Deanonymization: Some tools employ artificial intelligence and proprietary methods to deanonymize blockchain addresses, revealing likely owners and their token holdings.

• Fact-Checking: Traders can verify the authenticity of claims made by influencers, projects, or institutions. For instance, are they genuinely bullish or just promoting for pay?

b. Transaction Analysis 📊 

• Tracking Funds: Blockchains record every transaction's sender, recipient, timestamp, and amount. This forms the basis of transaction analysis.

• Real-Time Notifications: Analysts can receive real-time notifications about transactions, which is crucial for spotting trends or even following successful traders' moves.

• Example: A venture capital firm moving a substantial amount of a specific token to an exchange may signal a potential market shift.

Insights from These Building Blocks 🔍️ 

Now that we've talked about the basic parts of on-chain analysis, like looking at what people own and what they do with it, let's see why it's important to combine these two things. When we study what people own and their transactions together, it forms the basis for all on-chain analysis.

Top Holders 🫰 

On-chain analysis allows us to identify the largest holders of a specific token. Some tools can automatically sort and present this data, making it easy for traders to see who holds the most of a particular token.

• Market Influence: Large token holders can significantly impact token prices. Traders often track these holders to anticipate market moves.

• Sentiment Analysis: The distribution of a token among top holders can reveal whether it's concentrated among insiders or more widely distributed.

Exchange Flows 📈 

Monitoring the movement of funds between non-exchange wallets and exchange wallets provides insights into market sentiment.

• Bearish vs. Bullish: Inflows to exchanges often signify a bearish sentiment, indicating an intent to sell. Outflows, on the other hand, can signal a bullish sentiment, suggesting a desire to hold assets for the long term.

• Market Timing: Understanding these flows can help traders anticipate market shifts and make informed decisions.

Whale Alerts 🐳 

Whales, or large cryptocurrency holders, can significantly impact markets. On-chain analysis tools offer the ability to set alerts for whale transactions.

• Following Whales: Tracking large transactions from whales can help traders stay ahead of market trends.

• Copying Success: Retail traders often emulate the moves of whales in the hope of benefiting from their market insights.

"Crypto analytics is more than data; it's a tool to catch the bad actors and maintain a clean space." 🔍- Vijay, Bitscrunch in the Twitter Space

Multichain Activity ⛓️ 

With the rise of various blockchain platforms, tracking token movements across different blockchains has become crucial.

• Cross-Chain Transactions: Bridges enable users to move tokens across blockchains. Monitoring these activities can provide insights into emerging projects and DeFi protocols.

• Stay Ahead: Traders who understand the preferences and activity of blockchain users across various chains can identify opportunities and risks.

A Bird’s Eye View: Network Level On-Chain Data 🐦️ 

In the earlier parts, we talked about the numbers and viewpoints that on-chain analysis uses to help with trading, research, among other things. Now, let's go a step further from these basic pieces of on-chain data and see how experts can use them to study big-picture data about an entire system or the economy using on-chain signs.

Macro on-chain data offers a bird's-eye view of the collective behavior of market participants.

• Active Addresses: Monitoring the number of active wallet addresses provides insights into network adoption and usage trends.

• Total Value Locked (TVL): TVL in DeFi protocols reveals the popularity and growth of specific platforms.

• Unique Token Holders: The number of individuals holding a particular token helps gauge market interest.

Exploring On Chain Analytics Tools 🛠️ 

Visualizing On-Chain Data 📊 

Visualization tools make it easier for traders to comprehend complex on-chain data.

Bubblemaps: This tool allows traders to visualize the concentration of token ownership, helping assess potential risks to price actions.

Competitor Analysis: Visualizers help traders see connections between different entities, enabling them to monitor competitor activities in real-time.

Leading On-Chain Analytics Tools ⛏️ 

A plethora of on-chain analytics tools are available to traders and researchers, each with its strengths:

• Arkham: Offers comprehensive features for understanding market activity, portfolio tracking, real-time alerts, and more.

• Etherscan: Widely used for detailed transaction-level data analysis.

• Glassnode: Provides powerful insights into broader market data and institutional-grade analytics.

• Icy Tools: Specializes in NFT tracking and analytics, crucial for the growing NFT market.

• bitsCrunch: an AI-powered, decentralized NFT data platform that enables developers to build reliable NFT applications (dApps) quick and easy.

• Token Terminal: Offers aggregate metrics and big-picture market analysis, including fee data and project categorization.

Examples Which Show The Power of On-chain Analysis 💪 

On-chain analytics has proven to be a valuable tool for a variety of stakeholders in the cryptocurrency ecosystem, including investors, traders, exchanges, and regulators. Here are a few examples of how it has been used in recent times:

Bubblemaps Flagged the “Babycare” Exit Scam Before it Happened 👶 

In October 2021, BabyCare gained popularity on CoinMarketCap.

Bubblemaps analysis uncovered that a network of 40 interconnected wallets collectively possessed 25% of the total token supply. (a big red flag!)

They promptly alerted their community to our concerns about potential wallet-splitting, a tactic often used to distribute large token quantities across numerous wallets in an attempt to attract investors. (see this tweet for more details: https://twitter.com/bubblemaps/status/1452258655429136395 )

Just three days later, an abrupt sale of $400,000 worth of tokens occurred through these connected wallets. Subsequently, the project team deleted their social media presence and vanished without a trace.

Interconnected wallets can be easily seen in the image above | Source: Bubblemaps Case Studies.

Chainalysis Used it To Detect Money Laundering in NFTs 🥷 

On-chain analytics can be used to identify patterns of trading activity that may indicate market manipulation.

One such manipulative practice is wash trading - where a seller artificially inflates the value of their assets by trading with themselves.

By scrutinizing blockchain data, investigators (from Chainalysis) tracked NFT sales to addresses that were self-financed, meaning they were funded by the same entity that owned the NFT. (ref.- Chainalysis blog post, Feb 2022)

This analysis revealed that some NFT sellers engaged in hundreds of such wash trades, making their NFTs appear more valuable than they actually were. Such analysis helps identify and discourage fraudulent activities within the NFT marketplace.

NFT Sales to Self Financed Addresses | Source: Chainalysis Blog Post

FBI Used it To Catch the $4bn “OneCoin” Scammer 🕵️ 

On-chain analytics can be used to detect fraudulent activity, such as money laundering and theft.

In 2018 Karl Greenwood, the co-founder of OneCoin, was sentenced to 20 years in prison for orchestrating a multibillion-dollar multilevel marketing con

The FBI used onchain analysis to track the movement of OneCoin funds and identify the perpetrators of the scheme. They were able to trace the flow of funds from investors to Greenwood and Ignatova.

The FBI also used onchain analysis to identify the wallets that were used to launder the proceeds of the fraud. This information was used to seize millions of dollars in cryptocurrency.

Damian Williams, the top federal prosecutor in Manhattan, speaks at a press conference to announce the addition of “Cryptoqueen” Ruja Ignatova to the FBI’s most-wanted fugitives list, in New York, June 30, 2022 | Source: CNBC article

SEC Used it to Catch Insider Trading at Coinbase 📈 

The SEC used on-chain analytics to catch insider trading at Coinbase. Former Coinbase product manager Ishan Wahi leaked confidential information about crypto asset securities prior to public announcements to his brother, Nikhil Wahi, and a friend.

They purchased crypto assets before these announcements, leading to price increases, and sold them for substantial profits. On-chain analysis likely revealed the transactions and connections between the parties involved.

The SEC filed a complaint, and both Wahi brothers settled, agreeing to permanent injunctions and returning their ill-gotten gains. Ishan Wahi received a 24-month prison sentence, while Nikhil Wahi got a 10-month sentence. [ref.- sec.gov post from May2023]

Conclusion

On-chain analysis is a game-changer in the cryptocurrency space, providing traders and researchers with a wealth of data to inform their decisions.

Whether you're tracking whales, assessing market sentiment, or visualizing complex data, on-chain analysis opens new doors in the world of crypto. In a rapidly evolving space, staying ahead requires tapping into the wealth of information that blockchain data provides