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Here's How Profitable On-Chain Bitcoin Trading Really Is: Strategy Backtesting


u.today 14 July 2022 14:19, UTC
Reading time: ~2 m

On-chain analysis is a relatively new way of predicting movements and trends on the cryptocurrency market, which is why its tools have not been so widely adopted by traders and investors compared to technical indicators.

As suggested by the backtesting of the sophisticated trading strategy based on the PnL Index derived from the PCA of MVRV, NUPL and LTH SOPR indicators, the usage of the aforementioned indicators while trading BTC would have been 142x more profitable than regular holdings.

On-chain indicators backtesting:

Trading #Bitcoin with on-chain indicators shows at least 142x better performance than just holding.

We know this is an alpha, but the problem is traders are not patient enough to keep the positions for over six months until the next cycle comes. pic.twitter.com/ogzp0A0udp

— Ki Young Ju (@ki_young_ju) July 13, 2022

The strategy utilizes tools that mostly determine the spending nature on the wallets of traders and investors. It also determines when the market is overbought and oversold, which can be used for forming actual entry or exit signals for those who use the strategy.

As highlighted by the analyst, the main problem is that traders are not patient enough to keep their positions open for more than six months until the cycle changes since on-chain analysis is mostly a long-term forecasting tool.

The problem with on-chain data

The main issue with using the on-chain data and implementing it into your trading style is subjectivity and lack of actual testing. Back when Bitcoin was at the ATH, on-chain indicators and people who use them predicted the continuation of the trend and breaking new records like $100,000 and even $300,000.

The cryptocurrency community has also expressed its concerns about the usefulness of the on-chain tools that remain underdeveloped and untested. Users also reminded the analyst that he himself predicted a bottom for Bitcoin since the first cryptocurrency reached $50,000, which makes the effectiveness of the tools he promotes questionable.

At press time, Bitcoin is trading at around $20,000 after briefly plunging below $18,000 yesterday. 

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