Lexicon of on-chain analysis, by Professor Chaîne

Lexicon of on-chain analysis

The time has finally come for you to discover the fabulous world of on-chain analysis. Motivated, you scour the documentation of multiple on-chain data providers, you scour Twitter for information and opinions on the subject.

It may be a small step for others, but a big step for you!

However, a barrier stands in front of you: You do not always understand the vocabulary, terms and elements used by some …

“GN’s T3 data provides excellent insight into the behavior of LTHs. “” The zone of neutrality of the NUPL, as well as the threshold of 0.5 of the NRPL, we act as a support. “” The development of CQ’s UTxO metrics is progressing rapidly. ”

Do not panic ! Here is a glossary containing several definitions on on-chain data to support your learning.

Unspent Transaction Output (UTxO)

This term refers to the output of a transaction that has not been used as an input in a new transaction.

UTxOs can be compared to physical coins, in that they must be spent discreetly. If you want to spend a 5-cent coin, you cannot spend half of a 10-cent coin. You must spend the entire coin and receive a 5 cent coin as change.

Unlike physical coins, UTxOs do not have standardized denominations. A UTxO can contain any amount of BTC.

UTxO Bitcoin Scheme

Simplified diagram of a Bitcoin transaction

Spent Output Age Bands (SOAB)

The Spent Outputs Age Bands metric groups the tokens spent in different degrees by age and represents them by colored bands as a proportion of the total tokens moved.

This metric is calculated by targeting the age of the tokens that have been the subject of a transaction (destruction and creation of a UTxO) within the specified time window.

Useful for observing the age of tokens in motion, it makes it possible to determine whether the market is influenced by long-term or short-term players and even to identify the cycles of distribution and maturation of tokens.

Spent Output Age Bands SOAB

Spent Output Age Bands (SOAB) graph – Source: Glassnode

Concretely, warm colors (yellow) will dominate the days when more young tokens will be spent while cold colors (purple) will occupy a large part of the bands on days when old tokens will be spent.

Unless capitulation or strong distribution, the majority of tokens traded daily are less than one month old.

Spent Volume Age Bands (SVAB)

A cousin of SOAB, it is in the form of volume that this indicator depicts the age of UTxOs. The Volume Spent Age Bands (SVAB) are a separation of the on-chain transfer volume based on the age of the tokens.

This metric shows the proportion of BTC volume classified into different age groups.

Useful for observing the age of moving tokens, it helps determine whether the transfer volume is dominated by long-term or short-term players.

Spent Volume Age Bands Chart SVAB

Spent Volume Age Bands (SVAB) graph – Source: Glassnode

As with SOAB, warm colors (yellow) will dominate on days when a large volume of young chips will be spent while cool colors (purple) will occupy a large part of the bands on days when the volume of old chips will be dominant.

Spent Output Profit Ratio (SOPR)

The Spent Output Profit Ratio indicator provides an overview of the profits or losses made by all tokens moved on-chain.

The SOPR is calculated by dividing the realized value of a UTxO at its destruction by the value at its creation.

Viewing profits / losses being made at all times, this indicator is often seen as a reflection of market sentiment. Both the absolute value of the indicator and the underlying trend give us insight into the behavior of overall spending.

Spent Output Profit Ratio SOPR Chart

Spent Output Profit Ratio (SOPR) graph – Source: Glassnode

The SOPR indicator can be interpreted as follows:

SOPR> 1: The moved tokens sell, on average, at a profit (buy price> sell price); SOPR <1: The moved tokens sell, on average, at a loss (buy price Adjusted Spent Output Profit Ratio (aSOPR)

The adjusted aSOPR or SPOR has a construction / interpretation similar to that of the SOPR. However, it excludes any transaction volume for tokens with a longevity of less than one hour.

Usually, very low longevity UTxOs do not represent the sale or purchase of a token, but rather a relay or exchange transaction.

By filtering these transactions, aSOPR eliminates noise and more effectively captures signals of economic activity.

Chart Adjusted SOPR aSOPR

Adjusted SOPR (aSOPR) chart – Source: Glassnode

The SOPR indicator is read in the same way as the SOPR.

Net Realized Profit / Loss (NRPL)

The Net Realized Profit / Loss indicator quantifies the gains / losses made by the market over a given period. It shows the net profit / loss of all moved tokens against the value when they were created.

The NRPL is calculated by subtracting realized losses from realized profits.

As such, this metric indicates whether investors are selling at a profit or at a loss. It is very useful for measuring the extent of the damage following a strong distribution or for determining the state of portability of the market at an instant t.

NRPL Net Realized Profit / Loss Chart

Graph of Net Realized Profit / Loss NRPL – Source: Glassnode

The NRPL indicator reads as follows:

NRPL> 0: Overall, the market made gains; NRPL <0: Overall, the market has made losses; NRPL ≈ 0: Globally, the market has made neither losses nor gains; A breakeven point serving as a support indicates that the market, in a state of profit, is struggling to make losses; A breakeven point serving as resistance indicates that the market, in a state of loss, is struggling to make gains.

Net Unrealized Profit / Loss (NUPL)

Alter ego of the NRPL, the Net Unrealized Profit / Loss indicator or net unrealized gains / losses, quantifies the unrealized gains / losses by the market over a given period.

It answers the following question: “If all units of a given currency were sold today, how much would investors gain or lose”?

The NUPL is calculated as the difference between the relative unrealized profits and the relative unrealized losses.

This metric indicates whether investors are brooding latent profits / gains. It is very useful for measuring the risk of selling pressure on an asset or for gaining insight into the bullish / bearish conviction of market participants.

In addition, it makes it easy to determine a market sentiment depending on whether the bias at an instant t is bullish or bearish.

Net Unrealized Profit / Loss NUPL Chart

Net Unrealized Profit / Loss (NUPL) chart – Source: Glassnode

The NRPL indicator can be interpreted as follows:

NUPL <0: Market capitulation; NUPL> 0: Hope (bull) – Fear (bear); NUPL> 0.25: Optimism (bull) – Anxiety (bear); NUPL> 0.5: Belief (bull) – Denial (bear); NUPL> 0.75: Euphoria (bull) – Greed (bear).

Market Capitalization (mCap)

Traditionally, the market capitalization or market capitalization is a formula defining the total value of all the assets of a company. It is calculated by multiplying the price of a share by the total number of shares outstanding.

In the case of a cryptocurrency, this value is calculated by multiplying the price of a token by the total number of tokens in circulation.

Chart Market Cap mCap

MCap chart – Source: Glassnode

Realized Capitalization (rCap)

The realized capitalization is a variant of the mCap making it possible to better measure the value of distributed assets.

While mCap implicitly assumes that all tokens are active, the fact is that many BTC tokens are illiquid and dormant.

The rCap filters the daily noise of the market and provides an estimate of the base cost invested by the set of participants. This indicator then makes it possible to measure a more authentic value of the asset.

It is calculated by multiplying the price of the tokens at the time of the creation of the last UTxO by the total number of tokens in circulation.

Chart Realized Cap rCAP

Realized Cap graph (rCAP) – Source: Glassnode

MVRV Ratio

The MVRV ratio measures the deviation of the market price from the realized price of an asset. This is an oscillator that measures the overall profit or loss state of the market, indicating selling pressure and potential for accumulation.

This metric is obtained by dividing the mCap by the rCap. By comparing these two measures, the MVRV can be used to know when the price is above or below its “fair value”, helping to identify highs and lows in the market.

Market Value to Realized Value Ratio (MVRV) Chart

Market Value to Realized Value Ratio (MVRV) chart – Source: Glassnode

Thus, if the mCap exceeds the realized capitalization (MVRV> 1), the market will be in a general state of profit.

On the contrary, if the market capitalization is worth less than the realized capitalization (MVRV <1), the market will be in a general state of loss.

MVRV Z-Score

The MVRV-Z Score is used to assess whether an asset is overvalued or undervalued relative to its “fair value”, as highlighted by the difference between its market value and its realized value.

Technically, this indicator is defined as the ratio between the difference between mCap and rCAp and the standard deviation of mCap.

MVRV Z-Score chart

MVRV Z-Score chart – Source: Glassnode

When the market value is significantly higher than the realized value, this historically indicates a peak (red zone), while the reverse indicates market lows (green zone).

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The content on our website is for informational purposes only. The information on this page does not constitute investment advice or a recommendation to buy or sell. You should always do your own research and we recommend that you seek outside financial advice.

About the Author: Prof. Chain


On-chain analyst, fervent fighter in information asymmetry.

My goal is to inform everyone of the state of Bitcoin (as an asset and a distributed network) through the prism of on-chain analysis.
All articles by Prof. Chain.

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