7 Incredibly Useful On-chain Charts That Will Help You Time The Market [Part 1]

Trying to find an edge when investing in cryptocurrency is a challenge.

No worries. Even if you are new, I’ve got you covered.

Want to get an unfair edge over the competition? Find out how to better time the markets with these 7 cryptoquant.

Hopefully, after this guide, you won’t need to rely on astrology to buy low and sell high.

How to buy BTC at the Global Bottom

Chart link (free): Bitcoin: Exchange Inflow (Mean, MA7)

To know when the bottom is in, you need a signal that a capitulation event is happening/has happened. This is where the Bitcoin: Exchange Inflow (Mean, MA7) chart comes in handy. We will abbreviate it as EIMMA7 from now on.

Don’t worry if you don’t understand all the jargon. I will break it down for you.

You can access this chart for free on cryptoquant (here).

This cryptoquant chart allows you to look at the mean amount of BTC flowing into exchanges on a 7-day moving average (MA7) and the BTC price.

Mean is similar to the average, where it is the sum of all the given data values divided by the total number of data values given in the set. In this case, we look at the “average” amount of BTC sent to exchanges.

All exchanges mean spot & derivative exchanges for which data is available on cryptoquant. Spot exchanges are exchanges where you can buy and sell Bitcoin and other cryptocurrencies. Derivative exchanges allow you to go long and short with leverage. Some exchanges like Binance allow you to do both.

7-day moving average: A moving average takes the past days of numbers, takes the average of those days, and plots it on the graph. For a 7-day moving average, it takes the last 7 days, adds them up, and divides it by 7.

Now that we have some of the terminologies out of the way let’s tackle the critical question, which is:

Why is this important?

When capitulation events happen, or in other words, the market turns red, the EIMMA7 spikes up drastically as the mean amount of BTC goes up drastically. When the mean goes above 2BTC, it’s generally a good indicator that the market has hit a global bottom.

Why is this happening?

• Whales are capitulating and thus sending a large amount of BTC to exchanges.

• Whales are sending BTC to derivative exchanges to cover underwater long positions.

• Whales are sending BTC to derivative exchanges as collateral for long positions.

Recipe for buying the dip at global bottoms: 

1. Wait for the capitulation event: BTC drops -25%+

2. Bitcoin Exchange Inflow (Mean, MA7) > 2BTC

3. Check other on-chain metrics (Read this: How to Use On-chain Indicators to Predict Market Tops and Bottoms)

4. Profit!

Wait! We are not finished yet. One chart is not enough to predict anything. There might be false positives when an alert triggers. That’s why we will continue with a fundamental chart that most retailers don’t know about.

Why Whales Sending BTC to Derivative Exchanges Might Be A Positive Sign For Crypto

Cryptoquant chart link (pro): All-exchanges to derivative exchanges BTC flow (mean)

One of the most powerful on-chain charts I have come across is the “Whales sending BTC to derivative exchanges.

The most critical indicator in the chart below is the yellow wave representing “All Exchanges to Derivative Exchanges BTC Flow (Mean).

In other words: How much Bitcoin is being sent per transaction from exchanges to derivative exchanges?

Tracking this is important because whales will send a lot of BTC from exchanges to derivative exchanges to use that BTC as collateral for new long positions.

Furthermore, you can distinguish smart money from retail by looking at the average amount of BTC sent per transaction to derivative exchanges.

• High BTC mean per transaction = whales sending BTC to derivative exchanges

• Low BTC mean per transaction = retail investors sending BTC to derivative exchanges

First, you need to understand the two most essential phases in all markets. Those are:

1. Accumulation: During this phase, whales and smart money slowly build up massive positions in BTC, ETH, and promising altcoins. Whales can often manipulate the markets by setting sell walls to buy cheaper or filling their order by liquidating long positions. Either way, they accumulate BTC and other cryptos slowly so that prices stay low.

2. Distribution: After a period of imbalance where the markets trended significantly higher, whales and smart money will likely take some profit. They will sell into liquidity at resistance levels.

You only need to remember that you want to be accumulating alongside the smart money during the accumulation phase, and sell during distribution.

It sounds easy, but in the short term, you will be distracted by noise.

You do not want to buy during the distribution phase after a euphoric rally when retail starts pouring in.

Retail is only suitable for one thing: Exit liquidity for everyone that got in during the accumulation phase.

Profit Recipe:

1. Exchange to derivative exchange BTC mean > 5BTC (whale)

2. DCA into BTC and ETH

3. DCA out of BTC and ETH E2DE < 2BTC (ant)

4. Profit!

Cryptoquant chart link (pro): All-exchanges to derivative exchanges BTC flow (mean)

Caveat: Even though whales might be sending BTC to derivative exchanges, it doesn’t mean that the BTC bottom is in. Whales and smart money want to get the best prices by liquidating other traders that are long. That’s why you might set a limit order below general liquidation levels.

You can see limit orders in the BTC heatmap below as well as if the price action is coming from retail or trades. The whiteline in the heatmap below shows that there are more than $10m worth of limit orders close to $18k.

I will elaborate more about heatmaps in another post.

(Source: material indicators)

3 Red Flags To Watch Out For Before A Crypto Crash

chart (free): All Exchange BTC Inflowchart (free): All Exchange BTC Netflowchart (free): All Exchange BTC Long Liquidations

The following few on-chain indicators are compelling at determining if a big crash wiRiskappen. The best way to monitor whether smart money or whales are getting ready to exit the market is by looking at the NetFlow into exchanges.

chart (free): All Exchange BTC Netflow

Netflow is calculated by the amount of BTC going onto exchanges subtracted by the amount of BTC leaving exchanges. When the NetFlow is high, a lot of BTC are still on the exchanges, increasing the dumping risk.

It’s also important to monitor Risk exchanges for a high NetFlow since users send BTC to spot exchanges beRisk e they are about to sell.

With that said, here are the 3 alerts (Credit: Nighthawks Capital) you need to set up on cryptoquant to warn you of a potential crypto crash:

Source: Nighthawks Capital

1. BTC: All Exchanges Inflow Total per hour > Above 7’000BTC = Dumping Risk 🔻

2. BTC: All Exchanges Netflow Total per hour > Above 7’000BTC = Dumping Risk🔻

3. BTC: All Exchanges Long Liquidations per hour > Above 4’000BTC = Long Squeeze 🔻🔻

Tip: It’s also helpful to monitor short liquidations as it’s a sound alert to show you when the downtrend is slowing down.

Make sure to subscribe to this newsletter and follow me on Twitter (@eth_whalehunter), as I have a bot that will make a tweet when different on-chain indicators trigger.

This is the end of [PART 1]. Next week I will publish [PART 2] with the remaining charts that are incredibly useful to time the markets.

END

On-chain analysis is a powerful tool to help you time the market and make better investment decisions. In the first part of this two-part series, we've looked at three out of seven different on-chain charts that can give you an edge in the market.

These charts can help you track key indicators, such as the amount of Bitcoin being moved onto derivative exchanges or the number of liquidations. Tracking these indicators gives you a better sense of when to buy or sell Bitcoin. So, be sure to subscribe to the onchain edge as I will make new posts and guides updating you on where Bitcoin and the crypto market is at.

Cheers,

eth_whalehunter