On-chain Analysis: 10 Crypto Trading Indicators to Spot Next Bull Run

In April 2024, the global crypto market cap surpassed the $3 trillion mark for first time since November 2021. Bitcoin, PEPE, and other prominent coins reached new all-time highs during this period.

However, since the start of H2 2024, the market has struggled for traction. Despite the much-anticipated launch of the Ethereum ETFs, on late-June, the cryptocurrency market has experienced a notable downturn in H2 2024 so far.

This has left many investors questioning when the market will bottom out and when the next bull run will commence.

This article explores ten key on-chain indicators that signal a market bottom, and help strategic investors time the next crypto bull run.

What is On-Chain Analysis?

On-chain analysis, involves examining data directly from the blockchain, provides valuable insights that can help pinpoint when the market has reached its lowest point.

Analytics tools and platforms derive their data directly from the blockchain, offering real-time insights into market sentiment, user activity, and the overall health of a network.

Unlike traditional market indicators that rely on price movements and trading volumes, on-chain analysis delves deeper into the behavior of cryptocurrency holders and network participants.

Accurately identifying the market bottom can offer investors a crucial advantage, enabling them to position themselves strategically for the next bullish phase.

By understanding these indicators, investors can gain early insights to stay ahead of the curve and time the next bull run perfectly.

10 On-Chain Indicators to Spot Crypto Market Bull Run

When trying to pinpoint the market bottom, several key on-chain indicators offer invaluable insights. These ten (10) metrics help investors gauge market sentiment, detect accumulation patterns, and assess the overall health of the blockchain network.

1. Active Addresses

One of the most telling on-chain indicators is the number of active addresses on a blockchain. This metric tracks the number of unique addresses that participate in transactions over a given period, providing a snapshot of user engagement. During a market downturn, a significant drop in active addresses often reflects reduced market participation and bearish sentiment.

However, a steady or gradual increase in active addresses during a downturn can signal renewed interest and the potential formation of a market bottom. For instance, during the bear market following the 2017 bull run, a consistent rise in active addresses on the Bitcoin network preceded the market bottom, indicating that new and existing participants were re-engaging with the network. Investors can track active addresses using platforms like Glassnode and CoinMetrics.

2. Transaction Volume

Transaction volume is another crucial on-chain metric, measuring the total amount of cryptocurrency transferred on a blockchain over a specified period. Declining transaction volume typically indicates a lack of market activity and waning interest, which are common in bear markets. However, when transaction volume begins to stabilize or even rise after a period of decline, it can signal that the market is finding its bottom.

This pattern was evident during the 2018 bear market, where Bitcoin’s transaction volume showed a steady increase in the months leading up to its bottom in December.

This rise in volume suggested that more participants were starting to engage with the market again, paving the way for a recovery. Transaction volumes can be monitored using tools like Blockchain.com and CoinGecko.

3. Whale Accumulation

Whales, or large holders of cryptocurrency, play a significant role in market movements. Their buying and selling activities can have a profound impact on prices. When whales begin accumulating assets during a market downturn, it often indicates that they believe the market is nearing its bottom.

This accumulation by large players can serve as a bullish signal for the broader market, as it reflects confidence among those with significant influence. Historical data supports this, as in the months leading up to Bitcoin’s bottom in 2018, increased accumulation by whales was observed, which was soon followed by a market recovery. Investors can track whale activity using platforms like Whale Alert and Santiment.

4. Exchange Flows (Inflows and Outflows)

Monitoring the flow of cryptocurrencies to and from exchanges provides valuable insights into market sentiment. Exchange inflows generally indicate selling pressure, as assets are moved to exchanges to be sold. Conversely, exchange outflows suggest accumulation or holding, as assets are withdrawn from exchanges and stored in personal wallets.

A sharp decline in inflows, coupled with an increase in outflows, can signal that selling pressure is waning and that investors are moving assets off exchanges to hold for the long term.

This pattern is often observed as markets approach their bottom. For example, in the current market, exchange outflows have increased steadily since June 2024, suggesting that the selling pressure may be easing, which could indicate that the bottom is near. Investors can monitor exchange flows using platforms like CryptoQuant and Glassnode.

5. Total Value Locked (TVL) in DeFi

Total Value Locked (TVL) represents the total value of assets locked in decentralized finance (DeFi) protocols. It serves as a proxy for the level of confidence and activity within the DeFi ecosystem. A rising TVL during a market downturn suggests that investors are increasingly confident in the long-term prospects of DeFi, which could indicate that the market is bottoming out.

For example, as of August 2024, TVL in Ethereum-based DeFi protocols has remained resilient, holding steady around $48.8 billion. This stability in TVL may suggest that DeFi investors are not panicking and are instead holding onto their assets, possibly signaling a market bottom. Investors can track TVL on platforms like DeFi Pulse and DeFi Llama.

6. Network Hash Rate

The network hash rate is a critical indicator for proof-of-work blockchains like Bitcoin. It measures the total computational power used to secure the network. A declining hash rate can indicate that miners are exiting the network, often due to reduced profitability during a market downturn.

However, when the hash rate stabilizes or begins to increase after a decline, it may signal that miners believe the bottom is in and are resuming operations, which can precede a market recovery. This was evident in previous bear markets, where a recovery in the Bitcoin hash rate was often followed by a price rebound. Investors can monitor the hash rate using platforms like BitInfoCharts and Blockchain.com.

7. Supply Distribution

Supply distribution, sometimes called “Supply Concentration” analyzes how the total supply of a cryptocurrency is distributed across different wallets. It can reveal insights into market dynamics, such as whether small holders (retail investors) or large holders (whales) are accumulating or distributing their assets.

A concentration of supply in the hands of large holders during a market downturn can indicate that they are accumulating, potentially signaling a market bottom. Conversely, if the distribution is becoming more widespread, it may suggest that retail investors are entering the market, which can also be a bullish signal. Supply distribution data can be tracked on platforms like Santiment and Glassnode.

8. Whale Activity

Whale activity, or the behavior of large cryptocurrency holders, is closely watched by investors. Large transactions by whales can significantly impact market prices, as their actions often reflect confidence (or lack thereof) in the market’s direction.

During a market downturn, increased whale activity, particularly accumulation, can signal that these influential players believe the bottom is near. This was observed in the lead-up to previous market bottoms, where whale accumulation was a precursor to a broader market recovery. Investors can track whale activity using tools like Whale Alert and Santiment.

9. Network Health

Network health encompasses a range of metrics that assess the overall vitality of a blockchain network, such as hash rate, network difficulty, and the number of active nodes.

A healthy network is typically characterized by high levels of participation and security, which can be reassuring to investors during periods of market uncertainty.

When network health metrics show resilience or improvement during a downturn, it may suggest that the network is fundamentally strong, even if prices are declining. This can be an early sign that the market is nearing its bottom. Investors can monitor network health on platforms like CoinMetrics and BitInfoCharts.

10. Sentiment Indicators

On-chain sentiment indicators, such as the Fear and Greed Index, provide a snapshot of market emotions by analyzing data points like volatility, market volume, and social media activity.

Extreme fear often correlates with market bottoms, as investors capitulate and prices hit their lowest point. Conversely, extreme greed can signal market tops. By tracking sentiment indicators during a downturn, investors can gauge when fear is reaching its peak, which could suggest that the market is bottoming out. Sentiment indicators can be tracked on platforms like Alternative.me and Santiment.

Conclusion

Identifying the bottom of a crypto market downturn is a challenging but potentially rewarding endeavor. By closely monitoring these ten on-chain indicators, investors can gain valuable insights into when the market may be turning the corner.

Each of these metrics provides a unique perspective on market sentiment, network health, and investor behavior, making them essential tools for timing the next bull run.