Simple and Objective: How to Use Messari On-Chain Data to Select Investment Targets?

If you believe that "the more people use the internet, the greater its value," then on-chain data is a good entry point.

Original Title: "Selecting Investment Targets Through Messari's On-Chain Data, What Have We Found?"
Author: Xing Xing

Many of our investment logics in the cryptocurrency circle come from large institutions, and many of the projects that cryptocurrency media outlets favor also come from the investment portfolios of these large institutions.

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Are these investment logics, these investment portfolios bad? Not necessarily. But are they good? Not necessarily either.

However, we are all prone to liking these investment logics, liking these investment portfolios. There is a strong appeal here, as it hits the weakness in human nature. It makes you think others are strong, and makes you think you are strong. The investment logics and investor portfolios of these large institutions belong to the system of the strong, while most of us are weak, lacking the many informational advantages, low costs, and risk resistance capabilities of these large institutions.

What defines the strong and the weak? The advantages of the strong lie in multiple dimensions such as information acquisition, trend control, deep understanding, risk resistance, relationships, and emotional control. The weak do not have these advantages; all they have to help them are common sense, time, and odds.

Most of us are weak, and what the weak often pursue is the simpler, the more certain, rather than complex investment hotspots and economic model logics.

And on-chain data might be an interesting entry point. A simple question is, do you believe that "if a coin is used by more people, will its value increase?"

Every network and cryptocurrency is promoting economic models and investment stories in bulk, but most public chains today have not escaped the dilemma of "no one using them." This is always like a thorn in the sole for many investors. Just when you are very optimistic about the future of a star public chain and ready to accelerate your entry, it occasionally pricks you, undermining your courage to go all in.

I believe there is an influence of so-called simple common sense here. This simple common sense (or a certain kind of hidden consensus) is that we believe "if a coin is used by more people, its value will increase."

If you also believe that the more people use a cryptocurrency, the greater its network value, and it becomes more investment-worthy in the future, then why not choose investment targets based on the on-chain data of each coin?

So what exactly is on-chain data? And what does it encompass? In simple terms, on-chain data refers to all the data that is natively stored on a blockchain.

This data includes (but is not limited to):

1. Detailed information for each block (timestamp, gas price, miner, block size, etc.);
2. Details of each transaction (sending address, receiving address, amount transferred in the transaction, etc.);
3. Information on invoked and used smart contracts.

On-chain data reflects the network activities of a blockchain and helps determine the health and speed of the network's development. Therefore, many researchers who study cryptocurrency valuation theories often like to tinker with on-chain data, attempting to discover the Newtonian laws of cryptocurrency valuation.

Today, we attempt to use data from Messari to explore investment targets and uncover potential investment opportunities based on the on-chain data of various coins it provides.

The data categories we will be using are transaction volume, NVT ratio, active addresses, and transaction count. (Please note: The data is sourced from Messari, and due to various reasons, there may be discrepancies and biases. Additionally, not all coins are provided, so the results are for reference only, aimed at helping readers understand and use tools to assess which coins' on-chain data looks more promising. Furthermore, due to the technical nature of privacy coins, there may be significant deviations in their data. All data is as of April 7th.)

Let's first look at transaction volume, using the 24-hour transaction volume on Messari for comparison. The top 20 coins by on-chain transaction volume provided by Messari are:

Here are some quick observations and reflections:

• Overall, there is a significant correlation between on-chain transaction volume and the overall market capitalization.
• Bitcoin remains a dominant force; despite Ethereum's claims to become a global settlement layer, Bitcoin's absolute dominance in this data remains unshaken.
• PoS projects may rank higher in transaction volume due to lower transaction costs.
• Several coins stand out in transaction volume rankings compared to market capitalization, such as DCR/DOGE/BAT/KNC/SNT/XVG, among others.

Next, let's look at the NVT ratio. But first, what is the NVT ratio? The NVT ratio stands for Network Value to Transactions Ratio and compares the network's valuation to its usage.

In traditional stock markets, the Price-to-Earnings (PE) ratio has long been an effective tool for evaluating companies. It is the ratio of a company's stock price to its earnings per share. A high PE ratio indicates overvaluation or high growth expectations for the company.

The NVT ratio is often referred to as the crypto market's PE ratio. Since Bitcoin's nature is not that of a company but a value network for payments and storage, the funds flowing through its network are considered an alternative to "company earnings."

An increasing NVT ratio indicates an overvaluation of the network's value, serving as a bearish price indicator, while a decreasing NVT trend signifies the opposite. As for what constitutes a good NVT ratio, there isn't a universally agreed-upon standard; some say 30, some say 100, some say 150. Remember, the lower, the better.

Using Messari's NVT ratio for comparison, the top 17 coins by on-chain transaction volume provided by Messari are:

Here are some quick observations and reflections:

• Overall, there is a weak correlation between on-chain transaction volume and market capitalization rankings.
• Currently, Ethereum's NVT ratio is lower than Bitcoin's, indicating that Ethereum's network value is slightly more undervalued compared to Bitcoin.
• PoS projects may also exhibit lower NVT ratios due to lower transaction costs, impacting their reference significance.
• Excluding PoS coins' inflated values, some PoW coins with notable network value include: DCR/Zcash/Verge, among others.

Let's now focus on active addresses, using the number of active addresses on Messari for comparison. The top 17 coins by on-chain transaction volume provided by Messari are:

Here are some quick observations and reflections:

• Overall, there is a certain correlation between active addresses and market capitalization rankings.
• ERC20 tokens' active addresses are noticeably lower compared to other "mainnet coins" or PoW coins, especially some older mineable coins that have a clear advantage in this aspect.
• The number of users in the crypto space is still relatively small, and having active users in the thousands is considered remarkable.

Let's now examine transaction count, using the 24-hour on-chain transaction count on Messari for comparison. The top 20 coins by on-chain transaction volume provided by Messari are:

Here are some quick observations and reflections:

• As expected, EOS and TRX have high transaction counts, with EOS in the first position and TRX in the third.
• The notable positions of XRP and XLM from Ripple are slightly surprising, with XRP in second place and XLM in fourth.
• BSV's transaction count is unexpectedly similar to that of Ethereum, three times that of Bitcoin, and fifteen times that of BCH.
• Dogecoin's transaction count is similar to BCH's, double that of Litecoin, indicating that having a major company backing doesn't always result in widespread adoption.
• Privacy coins are used but don't occupy a significant market share; it's unlikely to exceed 5%. Monero falls short compared to others, but major Bitcoin competitors like Litecoin and BCH don't necessarily have a competitive advantage over Monero, a fact Monero can be proud of.
• Decred is steady, maintaining its usual style of making the list but not standing out. In terms of market capitalization, its on-chain data does look promising.

I am a cautious retail investor, a weakling.

I don't use Twitter, I don't search for all kinds of latest blockchain industry information; I don't understand various institutional research reports, I don't know how to grasp industry trends; I lack the depth of understanding of experts, I don't have the networking resources of various big shots; I can't manage my investment emotions well, nor can I manage my risk tolerance properly.

I have to admit that I am a weakling.

However, I am willing to acknowledge my weaknesses. What I can often do is to try to avoid my weaknesses as much as possible and invest in what aligns with my abilities, investing in what I believe is based on simple common sense and will yield value over time.

On-chain data might be a good entry point, as I still believe in the assumption that "the more people use a network, the greater its value," which should be reflected and demonstrated in long-term investment cycles.

Lastly, where did we find the data for today's analysis? Here is the link

This article is reprinted with permission from ChainNews. Source: ChainNews (ID: chainnewscom)

Further Reading

• Only 32 Days Until Bitcoin Halving! Most Mainstream Exchanges Optimistic About Post-Halving Market
• "Congratulations, You've Inherited Bitcoin from 2010!" U.S. Humorous Short Film Portrays the Last Thing Crypto Investors Want to Happen

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