OKG Research Dialogue: The Bigger the Waves, the Higher the Fish Price - Insights into Cryptocurrency Market Trends from On-Chain Data
On-chain data is like a bird's-eye view of the blockchain.Author Hedy, OKG Research
"We have never been rational beings. But we can use the simplest tool—on-chain data—to perform the 'most powerful' analysis."
After experiencing a super macro week, the financial markets have undergone significant turbulence, and the performance of the crypto market is increasingly influenced by macroeconomic factors. OKG Research has gathered several on-chain analysts to interpret some of the dominant factors affecting the crypto market. In the previous article "Data Interpreting the Crypto Market's American Complex," we discussed the current crypto market's main narrative—'American Complex' with on-chain analysts Phyrix and Ai Yi, in the absence of native innovative narratives. From macro to micro, this time I invited Murphy to delve deeper into on-chain data indicators and understand the logic behind trading behaviors.
"From wild to private, and then to biological," the glamorous transformation of the crypto market
On-chain data is like a bird's-eye view of the blockchain. This data authentically records our behaviors, including institutional traders indicated by wind vanes and noise traders. Analyzing on-chain data is akin to dissecting the microstructure of financial markets, using a high-powered microscope to examine the logic and motivations behind each transaction. Mastering on-chain data analysis techniques means filtering out key information from vast amounts of on-chain data, constructing behavioral patterns and trend forecasts of the market, and grasping the market pulse.
This market has become increasingly complex; understanding it solely through supply and demand relationships is clearly insufficient. In the article "Repositioning the Crypto Market: The Pain of Transformation Under Global Liquidity Dilemma," the author proposed that Bitcoin is no longer a digital safe-haven tool but rather an amplifier of the U.S. stock market. The factors that can influence the U.S. stock market must include macro factors, so we need to fully understand this glamorous turnaround of the crypto market and manage our investor expectations accordingly. Murphy also agreed, stating that the crypto market's transition from wild to private, and then to biological, is a significant boon this year, but it has also prematurely exhausted accumulated purchasing power, pointing out that the current bull market has entered its latter half.
Moreover, regarding the recent market fluctuations, it is more about the impact of financial market volatility on the crypto market, representing a "trading recession" rather than an "economic recession." Arthur Hayes also mentioned in his latest article "Has the Bank of Japan Escaped Its Predicament? How Does It Affect the Crypto Market?" that the U.S. is in an election year, so using monetary policy tools will not allow a financial crisis to occur during the election period. He also discussed the impact of liquidity.
Different liquidity leads to different interpretations of large fluctuations
Last week, OKG Research also examined some trends in on-chain trading behavior from two dimensions: changes in holdings of wealthy addresses and on-chain inflows/outflows (specifically referring to inflows/outflows to centralized trading platforms). The analysis revealed that the BTC holdings of wealthy addresses decreased, and the rate of decline was 1.92 times that of other addresses. Additionally, last week's net outflow of large BTC transactions (over $5 million per transaction) exceeded 7 billion yuan. However, as more professional institutions enter this market, OTC trading may become the primary venue for large transactions. At this point, we should observe the changes in holdings of the top 100 wealthy addresses.
Thus, from individuals to funds, we can see some trends. The author believes this indicator is actually forward-looking. Regardless of whether liquidity is good or bad, since the current habit of holding large funds is to keep them in Web3 wallets (on-chain), the data of on-chain net outflows will remain for a period of time, indicating that the willingness to sell is stronger than the willingness to buy.
Murphy added that in the short term, this on-chain large net outflow/inflow is not directly correlated, as there are two purposes for entering the exchange: margin and selling intention, and the latter does not mean immediate selling, so there is no direct correlation in the short term. Besides the on-chain large indicators (fund-related), in this in-depth discussion, we also talked about three other categories of indicators related to supply and demand, sentiment, and the metaphysical indicators defined by Murphy. The author believes that this so-called metaphysical indicator is essentially the consensus of everyone.
Additionally, discussions on the trading habits of institutional traders, how to "replicate" the on-chain analysis path, and the multiple peaks in this market can be further explored in the podcast episode "In this so-called hardest-to-make-money bull market, how to find magical on-chain indicators," presented by the author and Murphy.
The greater the market turbulence, the more valuable the fish. On-chain data will become one of the simplest tools for you to understand the real on-chain market dynamics.
