Complete Guide to Differentiate Onchain Volume and Trading Volume

Complete Guide to Differentiate Onchain Volume and Trading Volume

Onchain Volume

This metric illustrates the overall amount of crypto movement in wallets in transactions captured on the a blockchain in a given period. It offers insights into the utilization of a network and crypto.

In crypto, it is a crucial indicator for traders assessing investments in explicit cryptos. This metric is a blockchain network’s pulse.

Trading Volume

This is the overall crypto amount traded during a specific time frame. Besides, it is a technical indicator representing a crypto market’s total trading activity. 

It is utilized by investors to assess the continuation or presence of a reversal or trend.

Main Differences Between Trading Volume Versus Onchain Volume

Onchain volume reveals a crypto’s movements on a blockchain. On the other hand, trading volume illustrates trading-associated transactions from exchanges.

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Onchain volume considers wallet-to-wallet transfers, payments, and smart contracts. Trading volume takes into account funds traded on decentralized and centralized exchanges.


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Measuring Onchain Volume

Measuring onchain metric volumes is simple. The transparency of blockchain networks makes the figures reliable.

Anyone can access, audit, and calculate the data. Besides, the volume can be represented as the overall crypto transacted or represented as a fiat equivalent value. 

One can consider a situation where Bitcoin’s onchain volume is 600000 BTC daily. This can be multiplied by the present market price in U.S. dollars (approximately $63000). 

To give a blockchain volume figure for Bitcoin represented in USD: 600000 BTC x $63000 =$37.8B onchain volume.

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Calculating Trading Volume

Its calculation is similar to onchain value and can be presented as a fiat currency or crypto value. It illustrates data from onchain trading activity and offchain trades.

Its precision depends on accurate and transparent reporting from centralized exchanges, which may alter reported volumes to seem more active than reality. 

Trading Versus Onchain Volume: The Most Reliable Metric

Generally, onchain volume is more verifiable and transparent since all transactions are recorded on public blockchains. It cannot be altered, tampered with, or deleted.

Accurate information is highly accessible. Nevertheless, onchain volume does not offer the whole market picture.

Trading volume aids in understanding the market dynamics. Since the information depends on the offchain trading that centralized platforms record. Such is subject to manipulation to realize a more optimistic scenario to investors.

Onchain data analysis’s reliability is higher. However, evaluating the two metrics for a complete picture is critical.

Use Cases for Onchain Volume

  • Network health: Rising onchain volume indicates a growing, healthy blockchain, while falling volumes illustrate a faltering network.
  • Monitoring liquidity: Onchain data offers insight into liquidity’s movement across the decentralized finance and crypto landscape.
  • Transaction fees: High network usage can increase this fee. One can utilize onchain volume to establish when fees might be cheaper or more expensive.
  • Transparency: Onchain volume aids in validating other metrics.
  • Market sentiment: People tend to transact on a network whose crypto project is bullish and growing, and prices are increasing.
  • Transparency: Onchain volume aids in validating other metrics. This includes trading volume that is susceptible to manipulation and abuse.

Why Trading Volume Matters

  • Liquidity: High trading volumes illustrate high liquidity since the chances of entering or exiting trading positions are higher. Low volumes can illustrate sluggish markets.
  • Trend confirmation: Sharply rising trading volume can illustrate an upward price outbreak, indicating traders are entering the market. Low trading volume can indicate a imminent retracement as traders exit the market.
  • Volatility: High trading volume can translate to higher volatility as more individuals trade concurrently. Low volume can result in a stagnant market where price movement is slow because of fewer active market participants.
  • Trading strategy: Trading volume is used by investors to develop strategies in the short, medium, and long term.
  • Exchange health: Often, exchanges report trading volumes for their platforms. Higher volumes illustrate a properly utilized exchange with much liquidity for traders to enter and leave positions quickly.

Trading Volume Versus Onchain Volume-Better Together?

On their own, the metrics do not offer a complete picture of the crypto market. By digging into onchain and trading volumes, one can get a more detailed analysis of strategic investments and trading.


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