There are a number of metrics without which it is impossible to assess the situation on the crypto market. RBC Crypto writes about ten key concepts that define what's happening in the industry.
Total Value Locked (TVL)
One of the main trends in the crypto market is decentralized finance (DeFi). Projects are ranked by total value locked (TVL). It helps to understand the value of a particular service, protocol or application running on the blockchain and clearly reflects the interest of their users.
Let's look at TVL using the Ethereum network as an example. As of May 2024, Ethereum TVL exceeds $60 billion. This is the amount of user funds in dollar equivalent placed in various projects and applications built on the Ethereum blockchain. It is convenient to track TVL in existing blockchain networks or in individual protocols and applications on the website defillama.com.
Bitcoin accumulation by miners
Bitcoin miners are one of the key participants in the cryptocurrency market, as they keep the network running and can also directly influence BTC prices. The fact is that in order to maintain operations, they may be forced to sell cryptocurrency, putting pressure on its price. When the market situation is favorable, miners accumulate coins.
The beginning of the accumulation of Bitcoin by miners may indicate a bull market and their expectation of further growth in the cryptocurrency rate. For example, in the summer of 2023, CryptoQuant announced a change in the behavior of miners. Instead of selling, they began accumulating mined cryptocurrency. This was followed by a rally, as a result of which in March 2024 Bitcoin updated its all-time high above $73 thousand.
Conversely, when analytical companies report the beginning of cryptocurrency sales by miners, a course correction can be expected. At the same time, it is important to understand that the market situation is not determined by metrics alone; this is not enough to make a decision to open a transaction.
The relationship between data on miners’ accumulations and the price of Bitcoin is clear show CryptoQuant charts.
Inflows and outflows on crypto exchanges
The amount of cryptocurrency that enters exchanges is called inflow. It can be of a different nature – it can be not only the assets of users, but it can also be the funds of the platform itself, which transfers it between its wallets.
If we consider inflows of funds as an indicator of the activity of traders and investors, then active inflows to exchanges often indicate a lack of user confidence in the market and are a bearish factor.
On the contrary, the outflow of funds indicates investors’ faith in the prospects for further growth in cryptocurrency prices. Cryptocurrency is transferred to external addresses if they do not plan to sell it in the short term. Therefore, large outflows are considered bullish.
Long-term Bitcoin holders
Another important metric that analytics companies track is the behavior of long-term Bitcoin holders. Often it is their actions that become an indicator of local maximums and minimums of the cryptocurrency price. The group of such users includes everyone who purchased bitcoins more than 155 days ago. This is possible thanks to the transparency of the blockchain – all transactions are visible and can be easily viewed using a browser.
CryptoQuant, in particular, has developed the Spent Output Profit Ratio (SOPR) indicator, which allows you to determine the profit or loss of various cryptocurrency holders when selling. In 2014, the SOPR coefficient was at a historical maximum of 60, then the price of Bitcoin reached $1 thousand for the first time in history. The last local maximum was set on March 22, 2024, at a Bitcoin price of $70 thousand.
Peaks in SOPR typically precede a market correction as long-term investors begin to take profit aggressively. There is pressure on the exchange rate, which leads to a decrease in price or, at a minimum, high volatility.
Bitcoin Dominance Index
The Bitcoin Dominance Index, Bitcoin market share or Bitcoin dominance is the ratio of Bitcoin's market capitalization to the market capitalization of the entire crypto market. Factors that influence this metric include BTC price changes, altcoin valuations, growth in stablecoin usage, market conditions, and the emergence of new cryptocurrencies.
Let's take a closer look at market conditions. During a bull market, the Bitcoin Dominance Index typically declines as users' risk appetite increases and they invest more in altcoins. In contrast, during a bear market, traders and investors are more willing to buy Bitcoin because it is the largest and one of the least volatile cryptocurrencies (not counting stablecoins).
By using the Bitcoin Dominance Index, traders can determine the mood of the market and, for example, trade during extreme index values: with high values, one can expect an imminent decline in the rate and vice versa, low values can indicate a likely future increase in the quotes of the first cryptocurrency.
As with any other metrics, the Bitcoin Dominance Index can only help to complement the picture of what is happening in the market, but cannot be the only reason for entering into a transaction.
The current value of the Bitcoin dominance index is available on almost all cryptocurrency aggregators like CoinGecko, but it is convenient to monitor its dynamics using the corresponding graphic arts on TradingView.
Fear and Greed Index
The indicator of the sentiment of cryptocurrency market participants is called the “Fear and Greed” index. It has a score ranging from 0 to 100, with the lowest point indicating fear (selling assets) and the highest point indicating greed (active buying).
High fear in the market indicates mass selling and panic and often marks a bearish trend. At the same time, a low index assessment can also act as a short-term or medium-term snapshot of market participants’ sentiments.
In the case where the index valuation is in the greed zone, there is a possibility of overvaluation and the formation of a bubble. Active purchases of cryptocurrency can lead to an overestimation of its price, followed by a collapse.
Ratio of long and short positions
The long-to-short ratio, like the Fear and Greed Index, helps assess investor sentiment at the moment. It allows you to see what most of its participants expect from the market – a high number of short positions indicates the possibility of a decline in quotes. In this case, there is a possibility of a squeeze, as a result of which a cascading liquidation of positions will lead to a sharp price movement in the opposite direction.
A short or short position is opened in anticipation of a fall. Long is a bet on future growth. If the forecast turns out to be correct, the trader takes the difference for himself. At the same time, holding a position for too long is also not the best option, since the user pays a commission for it. In extreme cases, these percentages may exceed the potential profit.
Bitcoin volatility index
The Bitcoin Volatility Index (BVOL) is designed to measure cryptocurrency price fluctuations. It allows traders and investors to measure the degree of risk and uncertainty and adapt their strategies based on this data.
BVOL is based on price, trading volume and historical volatility. During periods of market uncertainty, the index will be higher. And, on the contrary, the lower the indicator value, the more predictable the trading conditions at the moment.
There are some patterns associated with the index and the price of Bitcoin. In particular, increased volatility often increases the likelihood of a sideways trend. Low volatility indicates a possible imminent price movement up or down.
On-chain metrics
The number of unique transactions per day shows user activity. However, you need to be extremely careful with this metric. The practice of inflating trading volumes is common in the cryptocurrency market. Therefore, the number of unique transactions may not reflect the real picture.
You can also track the cost of transactions (the total volume of transfers for a certain period), the number of active addresses and the amount of commissions. Together, these on-chain metrics will help you get a more objective picture of a particular cryptocurrency.
There are dozens more different on-chain metrics. To dive deeper into this way of analyzing crypto market activity, you can study the weekly reports from Glassnode, a company that specializes in highly targeted on-chain market indicators.
Google Trends
One of the easiest ways to assess the popularity of cryptocurrencies at a particular point in time is the Google Trends service. It shows how the number of searches for various topics has changed over time.
For example, you can evaluate the level of “hype” of cryptocurrencies right now and understand how interested retail investors are in them. Often during peak prices in the market, the popularity of Bitcoin increases many times over. At the same time, a bear market is characterized by a small number of queries on cryptocurrency topics.
It is more logical to use English-language search queries (bitcoin or cryptocurrency) to get a more accurate global picture.
Source: Cryptocurrency
I am an experienced journalist and writer with a career in the news industry. My focus is on covering Top News stories for World Stock Market, where I provide comprehensive analysis and commentary on markets around the world. I have expertise in writing both long-form articles and shorter pieces that deliver timely, relevant updates to readers.
