This article is a collaboration by Glassnode and Bitcoin Magazine to introduce Bitcoiners to the world of on-chain analysis. Our aim is to simplify, demystify and improve access to on-chain data, helping you take the first steps into using these powerful new tools.
The Bitcoin blockchain is one of the most organic sources of data into human behavior in a free market that the world has ever seen. From its cypherpunk roots without price, to today’s corporate adoption with eyes on #LazerRaysTo100K, human demand for ultimate scarcity has attracted buyers and sellers from all walks of life.
Financial markets at their core are a balance of supply and demand which ultimately plot human psychology and perception of value against time. Market analysts have developed and deployed many tools to evaluate present and future valuations. Their goal is to find market inefficiencies, edge and financial advantage over their competitors.
Broadly speaking, there are three primary fields of market analysis and approaches that are utilized within the traditional finance world:
- Macroeconomic (Macro): Analysis of the big picture interrelation of asset classes, geopolitics and central bank policies over very long time scales. The aim is to identify large scale macro trends and opportunities with focus on baskets, indices and asset classes rather than individual “stock picks.”
- Fundamental Analysis/Value Investing (FA): Analysis of the intrinsic and structural advantages and weaknesses of a particular asset or asset class against the total addressable market and competitors. The aim is seeking to capitalize on under/overvaluation and market inefficiencies and identifying prices of maximum relative value.
- Technical Analysis (TA): Analysis of price signals, charts and indicators to extract information, patterns and probabilities with respect to the supply and demand balance over time. TA often places less relative emphasis on asset fundamentals, and instead focuses on the distillation of all known information into one metric: price.
Analysts and traders can opt to deploy any combination of skills and techniques from all fields, while others may specialize in just one. In all cases however, there is a critical input:
Accurate, high quality, timely and preferably asymmetric data.
Data availability is also subject to varying timescales; Technical analysts can observe price data to the second, fundamental analysts may watch quarterly reporting seasons, and macro investors pay attention to monthly central bank meetings and year-over-year changes.
Along comes Bitcoin.
A sound, digital monetary asset that continues to take ground in the minds of investors and analysts around the world. Over the past 12 years, a plethora of strategies and models have been developed in an attempt to model and project the adoption curve, performance and price of bitcoin. Analysts have used everything from transaction volumes to estimates of stored value and even rainbows, with no end…
Read more:Introducing On-Chain Bitcoin Analysis