Hashflow (HFT) Price Prediction 2023, 2024, 2025 to 2030: Should
How to use Glassnode for Onchain Analysis in 2023?
If you want to stay a step ahead of everyone when it comes to the crypto world, then on chain analysis is your answer. This is a powerful analytics tool that when combined with other similar techniques, can help you formulate strategies and make informed financial decisions. You can increase your profits substantially with the help of chain analysis while also developing and mastering your trading skills.
The industry is filled with several platforms and tools that support on chain analysis. However, there are very few that perform this function efficiently. One of the most popular and reputed projects that you can use to execute on chain analysis is Glassnode.
In this article, we will cover Glassnode in detail so that you can harness this tool and make the most of your crypto funds through on chain analysis.
What is on chain analysis?
On chain analysis is a method of analysing and reviewing a blockchain’s metrics like the executions, transactions and exchanges that have occurred in it. This gives the user a great sense of understanding of how a cryptocurrency would behave along with the network that it is built over. The history of the asset recorder can be easily examined to facilitate this process.
We have covered on chain analysis in great depth in our article, which I highly recommend you to read: How to Effectively Do Crypto On-chain Analysis in 2023.
What is Glassnode?
Founded in 2018, Glassnode has quickly grown in popularity and is today considered one of the most reliable tools for on chain analysis. Glassnode is extremely beneficial for users who want to utilize the data associated with markets and trace the past roadmap of various assets. Glassnode has an extensive list of features that help you work with very advanced and enhanced on chain parameters.
I have also penned down one complete list of best onchain analysis tools. Go through it to learn about more tools other than Glassnode. Okay, for now let’s explore Glassnode further.
When you visit the Glassnode website and login with your account, you will be taken to their main dashboard which has numerous things going on in it. On the topmost pane, you can see various sections, namely
Our main domain of interest as a beginner is navigating the “Chains” section. However, we will discuss other sections as well in brief so that you gain a holistic understanding.
Charts essentially highlight the progress of the currency that you are studying. With charts, we are provided with several graphs that we need to understand and interpret in terms of technical analysis.
Dashboard basically functions as some sort of personal logbook for users. You can save and highlight all the information that you may want to refer to or go back to again in the future.
Workbench is one of the best and most used features of Glassnode. However, it is a little more complex than the other sections on the platform. On workbench, you can compare different graphs and gain a more well rounded insight into the patterns.
TradingView provided you with information and graphs in form of candle sticks. You can study them and understand what they correlate with.
Alerts serve as a notification tab for users. For things that want to be reminded of or notified about, you can create an alert around those things and gGlassnode will inform you about that when the time comes.
The Pulses section provides you with a summarised flow of information in tables, all in one place. This way you get a quick overview of the currency you wish to examine and then dive deep into it later.
On chain Metrics
Having now discussed all the various sections that you can explore within Glassnode, now let’s head on to the metric you need to see and understand in order to gain something from on chain analysis
Realised Profit and Loss
When you understand the metrics around realised profit and loss, you can navigate and correlate various information around Bitcoin Tops, Bottoms, Dips and Reversals. For this, we primarily focus on studying the macro view of the investor spending behaviours that will give us a sense of the market sentiment amongst various investors. We have to notice the patterns and identify the cycles that repeat themselves.
If we notice positive values, we can determine a profit being realized and on the other hand, negative values represent loss being released. If the values show neutrality and proximity to zero, we can understand that “ spent coins transacted near their cost basis”.
- Positive values are highlighted with progressively rising peaks that may indicate that there is a possibility of achieving a local high if the demand weakens. With growing prices, this trend can also demonstrate that funds and coming in to take in the sell side.
- Negative values are highlighted with very deep lows values, that point at investors succumbing to the trends and the chances of upside reversion increasing. Oppsout to the previous parameters, with falling prices, this trend can signal an outflow of funds.
- A neutral scenario often indicates that high profit-making or loss-incurring coins are not really active. This data can be interpreted differently in a different market. In a bull run, it can highlight a positive future and the possibility of the price bouncing while in a bear run, it often represents an overhead resistance being produced.
When the oscillator reaches extreme values we can interpret that the number of profits or losses is huge.
- In the scenario where profits are extreme, it indicates an overpowering supply whereas in the case that losses are extreme, it shows the occurrence of market concession. Both scenarios may lead to a market reversal from either a local or a global standpoint.
- We can interpret a ‘buy the dip’ or a ‘sell the rally’ scenario when the oscillator highlights neutral values. It often represents that investors have the convection to hold the coins or that they are exiting at the cost level.
- We can notice a trend reversal when the oscillator shows really large losses during a bull market and massive profits at the time of a bear run. Some of these trend reversals include, “end of a correction, end of a macro trend, or a local swing high/low.”
Interpreting the Graph
If you look at the graph below you can notice several different indications.
- The Red Circles are showing excessive profits, signalling local Market Tops
- The Blue Circles demonstrate a scenario where in a bull market trends are supported and the correction lows show that there is some sort of market conviction coming back
- The Green Circles represent excessive losses, showing that local lows are being created along with market capitulation
- The Orange Circles are showing how there is trend support in the bear market with a resistance creation under process.
Reserve Risk is a wonderful metric that checks what is the balance between the risks involved and the potential reward for an investment and compares it relative to the sentiment amongst long-term holders and their belief in the investment. It encapsulates a lot of information regarding HODLer mentality into a single graph and also utilizes a lot of underlying concepts of on chain analysis.
Principles Under Reserve Risk
The oscillator provided by this metric gives the proportion and ratio between the ongoing price of an asset (this highlights the selling motivation), and the confidence of investors that have been keeping the asset for a very long time (this showcases the holding opportunity cost). The oscillator tackles macro markets and has well-structured peaks as well as blow-off tops. Reserve risk works under the following principles
- When a coin has not been consumed or spent, it collects “coin-days”. Coin days signal the period for which an asset has been inactive. This helps in estimating the confidence of HODLers.
- During the lead up to Bull markets, the price of a coin rises which in turn increases the motivation for investors to sell the coin in order to make more profits. Hence these HODLers end up using or selling these coins during this time.
- Long term Holders who have a lot of conviction, usually withstand the allure of spending the coin. This resistance amplifies the opportunity cost that cumulatively multiplies every time HODLers don’t sell the asset.
- During a phase where the oscillator shows low Reserve Risk, we can understand that there is an elevated sense of conviction in HODLers, which increases the opportunity cost that is unspent. In this scenario, the price is also less and the risk to reward ratio for the purpose of investing is more enticing.
- In a scenario where we find the reserve risk to be high, we should know that the opposite situation reigns true. Sense of confidence in HODLers is lacking, the opportunity cost that was unspent is now very less, the value of the con is increasing and there is no inviting risk to reward ratio.
- According to widely accepted standards, when the Reserve Risk Ratio is less than 0.0026, a period of undervaluation is declared and when this very ratio crosses the 0.0200 level, an area of overvaluation is assumed
You must understand that the Reserve Risk Ratio can change exponentially in terms of its value. This is attributed to the reason that, during the calculation, the price is taken in the numerator. As a result of this, it generally requires to be viewed on the log scale as well.
- When we talk of a Low Reserve Risk scenario, we can assume this even to be a stretched and prolonged one. For unspent opportunity cost to collect overdue course take a long while in addition to an elevated coin maturity. Due to this reason, in times that we see the Reserve risk drop, it often lasts from about late bear markets to the beginnings of the bull run. This is referred to as a period of Undervaluation
- A High Reserve Risk case occurs for a very small duration of time and gets over very quickly. During this time, the realised profits that occur in the phase are high and the prices are also increased. As a result, there is a compounding effect on selling stimulus. These High Reserve Risk phases go from about mid to late bull runs, and after the blow-off peaks, it reverses quickly. These are referred to as a period of overvaluation.
One of the most basic and important parameters that can help you navigate through the merits of a particular cryptocurrency is its supply dynamics. The supply of most assets is always transparent and easily verifiable. On basis of the supply dynamic, various sub-categories can be created on the basis of lifespan. These supply metrics can aid us in figuring out how much time has passed since a particular token was moved onto the chain last, determining market patterns, figuring the holdings, spending and flow of funds and understanding the investor sentiments.
Supply Metrics Indicators
- Circulating Supply: If you are even a beginner in crypto, you would have heard of the word “Circulating Supply”. This is a key metric that represents what is the complete amount of coins that have been issued since the cryptocurrency was established. Usually, these coins are allocated to the miners or validators in the beginning and late the total supply is hard capped.
- Supply Last Active +1 Year: this parameter is responsible for highlighting what percentage of a particular cryptocurrency has remained inactive in transactions in a span of one year. This metric is important for giving us details on the patterns and cycles of accumulation as well as allocation of the coin. When users hold and collect coins for longer, this metric increases in value and the opposite occurs when investors decide to spend their long-held coins.
- Issuance: the issuance parameter is a lot simpler than the others. It represents the number of coins of a specific cryptocurrency that are created each day. Issuance usually is a little volatile and changes drastically mainly due to the pace of block mining and the hash rate variability.
- Inflation Rate: inflation rate is basically where issuance is represented in the form of s supply expansion rate, drafted annually. The inflation rate can also be correlated with the circulating supply. It is massive in the early days when the circulating supply is undersized and reduces over time with halving events.
- Stock-to-Flow Ratio: Stock-to-Flow Ratio is essentially the opposing metric to the inflation rate. It reflects the number of years required to replicate the circulation supply with the rate of issuance at the time.
It is a generalised belief that the age of coins is cyclical in nature and it follows the patterns of the market.
- Old coins supply reduces in a bull market since investors spend their coins more. In bearish trends, the supply of old coins multiplies since users hold on to their assets, and short-term investors take up exit positions
- The Supply in the Last Active 1 year also shows a pattern of a cycle and is usually in line with the market trends. An oscillator that shows whether this supply is positive or negative can help us understand if the Supply Last Active 1yr+ is increasing or decreasing respectively. With this analysis, you can point out the various macro changes in the market trends.
Mining is the basis of many cryptocurrencies like Bitcoin. Proof-of-Work Mining, despite being the foundation, isn’t very well understood in the market. Mining metrics can be examined on both linear and logarithmic scales for a holistic understanding.
Mining Metrics Indicators
- Mining Difficulty: In a Proof of Work mechanism, miners are required to solve mathematical puzzles in order to validate a transaction block. Mining difficulty refers to the level of complexity of these very puzzles. It is usually determined on the basis of the speed at which the blocks are being processed and employs “Difficulty Adjustment”, to modify the complexity to an optimum value.
- Mean Block Interval: Miners are responsible for finding new blocks, and once that occurs they also have to enter the Timestamp in the header of the block. The average time between the mining of two blocks is referred to as the Mean Block Interval. This further helps in determining the Difficulty adjustment.
- Hashrate: What the Hasgrate basically does is it calculates the number of mining compassion that takes place in each second. Hashrates are often presented as estimated values and are measured using the values for Difficulty and Block Interval.
- Total Transaction Fees [USD]: The Total Transaction Fees are just the monetary fees that are paid to miners for their work in validating transactions. This value is demonstrated in terms of US dollars.
- Total Block Reward [BTC]: A particular amount of Block Subsidy is paid to users which includes issuance and newly minted coins. This in addition to the transaction fees, represented in BTC, is called the Total Block Reward [BTC].
- Total Miner Revenue [USD]: The Total Miner Revenue is nothing but the Total Block Reward [BTC] multiplied by the BTC/USD price prevalent when the reward is issued.
More the number of online miners, the more the amount of blocks are found and hence greater is the Difficulty. The opposite is true for when miners start exiting the network. In a scenario where the Difficulty is high, the applied Hashrate is also high. This represents that miners are holding more fiat currency, and can take part in more mining rigs. Overall it signals towards a bullish run. On the other hand, when difficulty is low, the applied hash rate is minute, and fiat dominated rewards are fewer, miners may stop their mining rigs which points towards a bear market.
When we plot a Difficulty Ribbon we see the difficulty level of mining across various moving averages. In a Difficulty Ribbon expansion, there is a greater rise of faster-moving averages growing. This indicates towards a healthy and beneficial hash rate, that in turn implies that the mining industry is growing and blossoming. On the contrary, when faster-moving averages fall much more quickly that the slow movie averages, the Difficulty Ribbon contracts, representing that the mining industry is strained and vulnerable.
When the mean block interval is less than the mark, it usually means that the industry is expanding, and the blocks are being validated faster. Generally in bearish markets or “shock events”, we see that the mean block interval often remains very high for a large time span and that miners are beginning to exit the network.
When we observe a rise in transaction fees it usually indicates that a bull run is on the rise, with more users coming in which increases the sense of urgency when it comes to mining. On the other hand, during less attractive market phases, there is less inflow of users on a network which is represented by lower transaction fees.
By performing on chain analysis on Glassnode, you can gain a very valuable insight into the market that is not just at the surface level. When combined with other effective strategies, you can find your profits being multiplied exponentially. However, it is important to remember that these are just metrics. Your investment decisions shouldn’t be based solely on these parameters. You must do plenty of research before investing in anything in the crypto market.