10 Best On-Chain Metrics to Evaluate Bitcoin

Written by Sean GraytokUpdated: 14th Nov 2021
Share this article

Disclaimer: This post contains references to products from one or more of our advertisers. We may receive compensation (at no cost to you) when you click on links to those products. Read our Disclaimer Policy for more information.

Bitcoin on-chain analysis allows you to extract investment signals from its blockchain.

They pull back the curtain and provide context to price movements that appear random to the casual observer but obvious to the on-chain analyst.

On-Chain Bitcoin Data: A Brief Background

Bitcoin’s on-chain data enable a degree of insight that is not possible with other assets.

Investors can analyze large amounts of Bitcoin data like trading behavior, the amount of leverage in the system, and the age of coins, because it is all recorded and publicly available on the Bitcoin Blockchain.

The transparency and simplicity of Bitcoin’s accounting system allow market participants to better understand bitcoin’s price action.

Best On-Chain Data Metrics in Bitcoin

This article generally analyzes two types of on-chain metrics: Buyer-and-Seller Behavior and Relative-Value Data.

These types of data are useful to identify macro trends that can potentially indicate bitcoin tops and bottoms. Let’s get into it.

#1. Long-Term Holder (LTH) Supply

A long-term holder is defined as a coin that has not moved in 155 days or more. The probability that a bitcoin is spent exponentially decreases with each passing day that it is not spent.

Glassnode analyzed unspent transaction output (UTXO), which describes the amount of ‘locked up’ bitcoin and determined that if a UTXO reaches a lifespan between 100-200 days, those coins belong to market participants that are less likely to speculate in the short term.

The LTH supply is the total number of bitcoins that have not moved in 155 days.

So, while there are 18.9 million bitcoins in ‘circulating supply,’ a large percentage of those coins have no intention of circulating.

#2. Short-Term Holder (STH) Supply

A short-term holder is a market player that acts in shorter time frames. Their UTXOs have a lifespan of fewer than 155 days.

UTXOs that have yet to mature to the 155-day threshold are more likely to be spent and therefore owned by potentially short-term holders.

Once the age of UTXOs exceeds 155 days, those coins now belong to a long-term holder.

Therefore, a more accurate metric for bitcoin’s circulating supply is its STH supply.

#4. LTH to STH Supply Ratio (LTH: STH)

The LTH: STH Supply Ratio is one type of “supply shock” ratio made popular by on-chain analyst Will Climente.

By pairing the LTH and STH supply metrics with the price of bitcoin, you can pick up on interesting macro trends in trading behavior.

Historically, the LTH supply and STH supply appear to be inversely related.

This inverse relationship between LTH and STH behavior is most evident around the peaks of bitcoin cycles, suggesting that the LTH: STH supply ratio may be used as a leading indicator to predict bull and bear markets.

As the price of bitcoin rips, a wave of new market participants enters the field and begin to buy.

Whales, who are long-term holders, tend to sell into the strength of increasing price action and offload their coins to new market participants.

This transfer of coins can play out for several months until the price of bitcoin peaks, and it experiences a significant market correction.

As the price of BTC falls, short-term holders sell into weakness and give their coins back to long-term hodlers, who buy, and buy, and buy during market corrections.

This behavior results in STH supply decreasing and LTH supply increasing during bear markets and mini bear markets.

The LTH: STH ratio is a leading indicator, meaning that the whales don’t perfectly time tops and bottoms to sell and reaccumulate, as seen in the chart below brought to you by Glassnode:

Here’s an over-generalized summary of the LTH to STH supply ratio:

  • Whales sell into strength as new market participants buy into a price rally
  • Causes LTH supply to decrease and STH to increase
  • Bitcoin cycle peaks, and price begins to fall
  • New market participants sell their coins back to whales
  • Causes LTH supply to increase and STH supply to decrease
  • Whales continue to accumulate as price grinds down or sideways in preparation for the next cycle

#5. Market Value to Realized Value (MVRV) Ratio

MVRV is a ratio that compares the market value to the realized value of coins on the Bitcoin network to measure when the exchange-traded price is above or below “fair value.”

It was created by Murad Mahmudov and David Puell in 2018.

Market value is the bitcoin equivalent of market cap for traditional finance and can be calculated by multiplying the current bitcoin price by the number of coins in circulation.

Realized cap approximates the value paid for all coins in existence by summing the market value of coins when they last moved on the blockchain.

MVRV Ratio = Market Value / Realized Value.

An MVRV ratio greater than 1.00 suggests that the current bitcoin market valuation is overextended compared to the holders’ aggregated cost base.

An MVRV ratio of less than 1.00 suggests that the current bitcoin market valuation is trading at a discount compared to the holders’ aggregated cost base.

Bitcoin spends most of its time trading above the 1.00 MVRV, but the extent beyond 1.00 is what’s important to watch. A higher MVRV suggests the market may be running hot.

Here’s some historic data on MVRV ratios from previous cycles:

  • 2013: Bitcoin doubled-pumped, and the MVRV topped at 5.75 and 6.18 at each respective peak. Then, the bitcoin price decreased for the next year, and MVRV bottomed out at 0.554.
  • 2017: The cycle peaked at a 4.85 MVRV ratio. Then, the price decreased for a year and bottomed out at a 0.699 MVRV ratio.
  • 2021: The highest MVRV ratio recorded was 3.98 around the first-time bitcoin crossed $60K. The MVRV has yet to dip below 1.00 in the current halving cycle.

#6. Spent Output Profit Ratio (SOPR)

The Spend Output Profit Ratio (SOPR) is computed by dividing the realized value (in USD) by the value at creation (in USD) of the output. Or simply: price sold / price paid.

SOPR oscillates around the number 1.

When SOPR is greater than 1.00, it means that the owners of the spent outputs are in profit at the time of the transaction.

SOPR less than 1.00 indicates the opposite; owners are at a loss.

This metric was created by Renato Shirakashi in an attempt to identify local tops and bottoms.

Shirakashi observed that SOPR values below 1 are rejected during a bull market, while SOPR values above 1 are rejected during a bear market.

He notes that, in general, people are more comfortable selling when they’re in profit. When SOPR falls below 1 in a bull market, people would be selling at a loss, which is not preferred.

Their reluctance to sell pushes the available supply down, which puts upward pressure on the price, causing it to increase.

Psychology works the other way, too. People are selling or waiting for a break-even point in a bear market to avoid selling at a loss.

When SOPR gets close to or exceeds 1, they begin to sell even more as they reach break-even, significantly increasing supply and sending the bitcoin price further down.

Here are some quick takeaways on SOPR:

  • The SOPR 7-day moving average can be used for bearish and bullish confirmations
  • If bitcoin has a major price correction, SOPR falling but bouncing off 1 suggests we’re in a bull market
  • If bitcoin has a major price correction, SOPR falling and crossing below 1 (and unable to break back above 1) suggests we’re in a bear market

#7. Market Cap to Thermocap Ratio

The Market Cap to Thermocap Ratio is used to determine if bitcoin’s price is currently trading at a premium with respect to total security spend by miners.

Put simply, it’s bitcoin’s market cap divided by its all-time miner revenue in USD (thermocap).

A high market cap to thermocap ratio suggests that bitcoin is relatively overpriced since the market value of bitcoin is extending well beyond the value that is spent to secure the network.

A low market cap to thermocap ratio suggests that bitcoin is underpriced relative to the value spent on hash rate to secure the network.

Historically, a high market cap to thermocap ratio has signaled that bitcoin is reaching a top, and a low ratio has indicated a great buying opportunity.

#8. Percent of Crypto Margined Futures

The percentage of futures contracts open interest that is margined in bitcoin and not in USD or a USD-pegged stablecoin.

The percentage of crypto-margined futures contracts can generally be used to determine the ‘health’ of the market. Here’s an example:

People get bullish on the bitcoin price and start buying futures contracts. They must post collateral to buy these contracts, so they do so with bitcoin. Then, the price of bitcoin begins to fall. As the profit-and-loss value of their trade decreases, so does the value of their collateral, and a large liquidation event occurs. The trade went against them, and their collateral was liquidated, which put even more downside pressure on the price of bitcoin.

This is an example of leverage getting flushed from the system and is often the reason why bitcoin’s price can free-fall in a matter of minutes — especially when some crypto exchanges offer 25x, 50x and 100x leverage.

These cascading sell-offs are less likely when futures contracts are margined with stablecoins or USD because the collateral value is less volatile.

Quick takeaways on Percent of Crypto-Margined Futures:

  • When more futures contracts are margined with bitcoin, a potential correction will be more severe if it were to occur
  • There is more convexity to the downside when this metric rises
  • There’s typically a sell-off in the price of bitcoin when the percent of open interest crypto-margined futures spikes
  • Bitcoin futures ETFs use USD as collateral, so the large capital inflows to these funds will likely cause the percent of crypto-margined futures to decrease relative to USD-backed futures

#9. Willy Woo’s Top Cap Model

The Top Cap Model precisely catches the last four bitcoin tops. It was created by on-chain legend Willy Woo and simply takes the all-time moving average cap of Bitcoin and arbitrarily multiplies it by 35.

The Top Cap Model currently has a price target of around $200K.

#10. Delta Valuation Model

The Delta Valuation Model is similar to Willy’s Top Cap Model and is another way to potentially identify Bitcoin tops.

It was created by Will Climente and extended David Puell’s delta cap metric, which is used to detect major market bottoms.

Let’s first define delta cap:

Delta Cap = Realized Cap – Average Cap

Delta cap is the difference between the realized cap and average cap, where the average cap is the real-time moving average of bitcoin’s market cap.

Essentially, when the market price touches the delta price, the cycle is thought to have reached its global low.

Ok, so there’s the floor. How about the top?

Will Climente’s model arbitrarily multiplies the floor (delta cap) by 7.5 to create a delta cap top price target.

Delta cap is the darker purple below the price of bitcoin, and delta top is the lighter purple above the bitcoin price.

The Delta Valuation Model currently has a price target of around $117K for the cycle.

General On-Chain Bitcoin Metrics

The above on-chain metrics are primarily based on the price action of bitcoin. However, there are other types of on-chain data that are less price-centric.

This includes metrics like Bitcoin’s supply rate, total network hash rate, mining difficulty level, active addresses, number of lightning network addresses, number of transactions, and much more.

These metrics serve as the foundation for the trading and relative-value metrics we previously analyzed.

Bottom Line: Best On-Chain Bitcoin Data & Metrics

These on-chain metrics might generate less alpha as they become more mainstream, but we expect a flood of new on-chain metrics as the community expands.

According to Anthony Pompliano, on-chain data has the potential to become the accounting standards of the future. These are exciting times.

Keep Reading:

Special thanks to:

  • David Puell
  • Murad Mahmudov
  • Nic Carter
  • Antoine Le Calvez
  • Renato Shirakashi
  • Willy Woo
  • Will Climente
  • Dylan LeClair
  • TXMC
  • TechDev
  • Anthony Pompliano
  • Glassnode
Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and is a recognized expert in investing, financial management, and Bitcoin. His work has been cited in leading industry publications, such as InvestorPlace and Business Insider. Sean is interested in the people and companies who are driving technological innovation.