Erik Weijers, a year ago

The most important on-chain Bitcoin metrics, neatly ordered

It can be dizzying, all those different types of charts with on-chain data… That’s why the renowned investment fund ARK Invest wrote a white paper that organizes and explains these tools investors use to evaluate the price of Bitcoin. ARK distinguishes different levels of analysis, each of which may appeal to a different group of investors.

ARK Invest focuses exclusively on new technologies that are disrupting existing industries, such as AI and robotics. For example, ARK was one of the first funds to bet heavily on Tesla years ago. Blockchain is one of the technologies in ARK’s sights. Founder Cathie Wood often is a guest in crypto podcasts to give her views on Bitcoin and other crypto.

A pyramid of layers of analysis

With the white paper, ARK hopes to provide tools for institutional investors to analyze Bitcoin. Too fewinvestors in traditional markets are crossing the chasm, partly because crypto as an asset class does not fit into a traditional analytical framework. Whereas according to ARK, Bitcoin lends itself ideally to in-depth analysis, due to the transparency of the blockchain. There are all kinds of metrics to choose from, and eachcorrelates more or less with the price of Bitcoin on a shorter or longer time scale.

ARK uses a pyramid with three layers for the overview.

  1. The bottom layer contains all the data about the health of the network.
  2. In the middle layer are metrics that deal with the long term
  3. The top layer contains metrics that deal with expected price movements in the short to medium term.

1 The base layer

The basic layer of the pyramid is about the security of the Bitcoin network, the number of users and the number of Bitcoin in circulation. These are the most basic vital signs of the Bitcoin network. The metrics for security can be broken down into:

  • Monetary integrity: understanding the issuance of the number of Bitcoin
  • Security: the hashrate and miner revenue in a given period.
  • Usage: number of active addresses and transaction volume per unit of time

2 The middle layer

This layer builds on the foundation layer. This layer of analysis operates on the level of market participants: miners, trading houses and individuals who buy or sell. A few metrics here give clues as to which market phase is coming: a bull market or a bear market.

  • Coin days destroyed: the lower this number, the more firmly people hold on to their Bitcoin. Is this value rising? Then more people move their sats, possibly to sell: the signal that a price drop is coming.
  • On-chain profits and losses: compares all Bitcoin in circulation, which share is currently in profit and which is in loss. If the share in loss is at least as large as the share in profit, this is a sign that the bottom of the bear market has been reached.
  • Realized cap: this is the total market value of all Bitcoins at the time they were purchased. When prices are rising, the realized cap will be lower than the market cap. If prices fall sharply and the realized cap falls to the level of the market cap, this is also a signal that the bottom has (almost) been reached.

3 The top layer

This layer contains metrics that show whether the Bitcoin price is over- or undervalued in the short term. Useful for people who like to trade on shorter time frames. Metrics fall into two categories, according to ARK:

  • Cost basis metrics: are a function of the price at which Bitcoin changes hands over time. An example is the Market-value-to-realized-value (MVRV) ratio. This is the market cap divided by the realized cap. At a value of 10, the market is severely overheated. At a value below 1, the bottom has been approximately reached. The current value is around 3.
  • Profit and loss metrics: for example, the short-term-holder profit/loss ratio. This also gives an indication of whether the price has reached the bottom or not.


Just as companies issue quarterly reports and countries issue economic data, the Bitcoin network offers its own data. An understanding of these data helps in making judgments about what the price is likely to do.

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