Why Entity Matters

The concept of entity is a key point in understanding on-chain data.

Finding out who Owns Bitcoin is Crucial to the Investment

There are certainly price drivers in the market and market status can be affected depending on the status of such drivers in the market. For example, if a Bitcoin miner sends their BTC to the exchange market and sells them, it would drive the prices down considerably. Like the case of a miners' sell, it is obvious that if someone with a big bag sells, the price will likely drop. Thus, it is important to track and watch certain holders' behavior and find out who are the major price drivers in the market.

The Magnitude and Different Interests of Major Players

Main participants who determine the price

Main participants who determine the price.

Amount

Retails selling bitcoin and business entities with a huge amount of coins selling their bags can't be interpreted at the same level because of its impact on price.

Different Interests

Each entity has a unique feature that they could give investors regarding interpreting the market structure or movement. It is essential for investors to understand what they are and be aware of what points investors should always pay attention to according to the entities. For example, as for miners, managing cost/revenue and reserve would be the priority while an investor company with a huge amount of digital assets focuses on keeping their reserve and trying to accumulate more assets.

Thus, from an investment perspective, major businesses and participants in blockchain can be classified into three types: exchange, miner, and whale.

Entity Crypto Types

Entity Type 1: Exchange

Exchange is where the actual trading events occur, which reflects the demand side.

The market price is formed as a result of trading activities, where the price is consensus in the market. The metrics based on exchange entities such as inflow or outflow can be a big sign of major trading activities which can be a risk handler for smart traders. We define an exchange in our metrics as all participants in the exchange including users (traders).

Entity Type 2: Miner

Miner controls supply on the blockchain by mining blocks.

If mining pools shut down or limit their mining activities for some reason, the network cannot be maintained. As mining pools make profits as much as they can, normally there is a timing gap between mining and monetization. By observing their behaviors via metrics such as miner outflows, traders can find unique signals to make profits. We define a miner in our metrics as all participants in the mining pool including individual miners.

Miners are OG whales. They periodically send a certain amount of BTC to exchanges, but if they decided to sell more coins, their outflow is likely to be changed significantly.

Entity Type 3: Whale

It makes and exploits market inefficiency by controlling both demand and supply.

A whale makes and exploits market inefficiency by controlling both demand and supply. Whales are traditionally important entities even in stock markets since they have the power to swing and move markets. Exploiting their patterns with CQ's metrics would be helpful to avoid risks.

To exploit market inefficiency caused by the entities as a trader, we need to see their behaviors. Flow data is CryptoQuant's own form of unique data that summarizes their behaviors. Compared to network data, flow data is more granular (micro) data that can explain detailed activities that occurred on the blockchain. By understanding how the entities behave in the blockchain, we may build unique trading strategies against normal traders. We briefly describe each type of entity on why those types are important in the following sections.

Future Trends in Entity Analysis

As the cryptocurrency landscape continues its rapid growth, the future of entity analysis presents exciting prospects. The integration of advanced technologies, such as AI and machine learning, is set to refine our strategies by providing deeper insights into entity behaviors. Privacy concerns and decentralization challenges may reshape the way entities operate, requiring adaptable strategies from market participants. Anticipating the rise of new entity types and understanding institutional influence are crucial for maintaining authority in cryptocurrency markets. Keeping a close eye on regulatory developments will be essential, as they impact how entities are interpreted and managed. As CryptoQuant's metrics evolve, offering enhanced access to valuable insights, users can navigate these changes, ensuring the continued value of their token holdings.

Final Notes

In conclusion, mastering entity analysis is essential for cryptocurrency owners and traders. As the industry evolves, understanding the growth potential, adapting strategies, and managing authority become paramount. The written future of entity analysis will be shaped by advancements in technology, responses to privacy concerns, and the influence of institutional players. Accessing reliable metrics and staying informed on regulatory developments will empower users to interpret entity behaviors effectively. With CryptoQuant's evolving tools, users can operate within the dynamic cryptocurrency landscape, ensuring the sustained value and growth of their token holdings. Stay tuned to these trends for a prosperous journey in the evolving world of digital assets.