Blockchain analysis is usually associated with combating money laundering and the prosecution of criminal offenses. This is also true, as this is where this particular form of IT forensics and data analysis can really come into its own. However, the evaluation of data and traces left behind by participants using blockchain technology reveals even more. Recently, many providers have specialized in evaluating data in such a way that it reveals more about the market.
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What conclusions can be drawn from these analyses and where are the limits of such evaluations?
Trading takes place on-chain
With the introduction of smart contracts, many different use cases can be mapped using blockchain technology. The most successful so far has been the decentralized trading of digital assets. These can be coins or tokens. In principle, shares could also be offered on the blockchain or emission certificates could be traded. For these examples, there are already a number of lighthouse projects that have set themselves the goal of implementing these and other things.
However, because regulation is progressing much more slowly, much of this is still a dream of the future. The present is dominated by decentralized exchanges - DEX for short. These decentralized exchanges do the same thing as Binance, Kraken or Coinbase. They provide liquidity via automated market makers and investors can participate in this process in return for a share of the fee income. Trading therefore takes place directly on the blockchain, making comprehensive evaluations possible, particularly in the DeFi segment. For example, it is possible to determine how financially better-off and heavyweight players behave. Do they buy a certain token? Do they withdraw their liquidity? Or are they expanding their exposure?
How one ultimately interprets the answers to these questions is a matter of opinion. Many private investors use this method for copy trading. They therefore look for other accounts on the blockchain that have a high trading success rate and simply invest in the same digital assets. There is no guarantee of success and, apart from the information available, it is impossible to assess what goals the person behind the wallet address is pursuing.
The limits of market evaluation
How one ultimately interprets the answers to these questions is a matter of opinion. Many private investors use this method for copy trading. They therefore look for other accounts on the blockchain that have a high trading success rate and simply invest in the same digital assets. There is no guarantee of success and, apart from the information available, it is impossible to assess what goals the person behind the wallet address is pursuing.
Another aspect is all analyses that are primarily dedicated to blockchains that do not allow decentralized trading. The prime example here is Bitcoin (BTC). This is because it is only possible to evaluate which transactions take place on the blockchain. However, it is not clear what purpose they serve. In the past, transactions worth billions have repeatedly given rise to speculation, even though it is not at all clear why they are taking place. It does not always have to mean that someone has stocked up on a huge amount of BTC. In many cases, Bitcoin exchanges simply operate strict wallet management and therefore shift amounts around. Another phenomenon is off-chain transactions, which cannot be analyzed at all. Here, Bitcoin is not transferred, but the respective private key is sold. This makes it possible to dispose of the corresponding amount without leaving any traces on the chain.
As can be seen, there are always limits to blockchain analyses for the purpose of market analysis. In addition to the technical hurdles, there is always the question of how the data material should be interpreted. When and whether certain trends in the behavior of participants in a network are bullish or bearish is a matter of opinion. Despite this limitation, the processing of data is very much in vogue, which is partly due to the fact that a number of providers are making the topic more accessible.
Which providers can be consulted?
On-chain analysis is an indispensable tool for anyone who wants to gain deep insights into the behavior and deeper structures of cryptocurrency markets. In recent years, various providers have specialized in providing this type of data. Through their groundwork, they help their clients make informed decisions. Here are three leading companies in this field:
- Glassnode: Provides a wide range of on-chain and financial market data, including thousands of metrics and indicators for Bitcoin, Ethereum, DeFi, stablecoins and top cryptocurrencies. Glassnode is known for its comprehensive data depth and data science methodology, precise wallet tracking algorithms and powerful API.
- IntoTheBlock: Provides AI-powered price predictions and sophisticated analytics in the DeFi space. Users can choose from over 900 digital assets and view various metrics such as price, market capitalization and changes. IntoTheBlock is particularly useful for detailed market data and DeFi protocols.
- Nansen: Combines on-chain data with an extensive database of wallet labels, making it a popular choice for crypto experts looking to conduct research. Nansen offers real-time dashboards and alerts to provide enhanced insights into the crypto market.
These providers use different approaches and technologies to collect, analyze and display on-chain data. They offer a variety of tools and services ranging from monitoring transactions and wallets to providing market analysis and price predictions. By using this data, investors and traders can develop a deeper understanding of market structures and behavior and adapt their trading strategies accordingly. However, this also comes at a price, which is often too high for hobbyists. For example, Nansen charges a slim 999 euros per month for its professional dashboard. The free accounts, which are also available, are offered with a greatly reduced range of functions.
At the same time, the quality and relevance of the data can vary depending on the provider. This makes it difficult, especially for beginners, to evaluate the providers and decide with certainty which scope of services is appropriate.
Can you teach yourself blockchain analysis?
Training to become a real forensic scientist takes time and costs money. On the other hand, if you just want to understand the market better, you can become a detective through self-study. Before diving deep, you need to familiarize yourself with the basics of blockchain and cryptocurrencies. You need a basic understanding of what a block, a transaction and an address are. Platforms like “Blockchain.info” and “Etherscan” are great places to start.
The next step is to choose a provider. Glassnode, IntoTheBlock and Nansen offer comprehensive insights and are user-friendly. It's best to start with the free version and explore the dashboards to get a feel for the data. Now you get to know the key metrics: from the total number of active addresses to the transaction volume. These numbers reveal a lot about the health and activity of a network. Now you can observe how these metrics change over time and look for patterns. These can be compared with the development of the markets. It is a good idea to use the platforms' chart tools to identify trends. Whether it is a sudden increase in network activity or the movement of large amounts of money, the visual representation helps to make the story behind the numbers more visible.
In addition, on-chain data should be compared with off-chain information such as news events or social media trends. Tools such as LunarCrush can help to understand the sentiment around a particular cryptocurrency.
I have been defrauded, what can I do?
If you need help in preparing a criminal complaint or want to identify the perpetrators and their traces using blockchain forensics, you should definitely get in touch with Crypto-Tracing. In cases of crypto fraud, this forensic evidence is invaluable because the perpetrators' transactions are uncovered. We close the gaps that authorities are unable to close for various reasons. We work in close cooperation with lawyer Marc Maisch, who specializes in crypto fraud and is happy to advise you on all legal issues.
Through targeted investigations, the collection and documentation of evidence, and support in filing a criminal complaint, the chances of effectively prosecuting the perpetrators increase. Contact us today through our form, and we will get back to you promptly to discuss the next steps in person.