Trading Volume vs. Onchain Volume – What is the Difference?

The crypto world is known for extreme price volatility, which requires investors and traders to gather enough data to develop effective trading strategies. The two most common metrics traders use to get a clear picture of crypto markets are trading volume and onchain volume.

It is easy for beginners to mix up the two metrics. Luckily, we have explained in detail all you need to know about the trading volume and onchain volume to help you use them properly when analyzing the markets. Read on to learn more.

Onchain Volume Defined

Onchain volume shows the total amount of a particular crypto asset moving between wallets within a specific period. It indicates the level of onchain activity in a network and measures the amount of a digital asset being used.

Trading Volume Defined

This metric measures the total amount of a crypto asset traded within a certain time period. It shows the level of trading activity in a cryptocurrency market. Many traders use trading volume to determine a price reversal or continuation of a market trend.

Trading Volume vs. Onchain Volume: Key Differences

While onchain volume and trading volume have similarities, there are major differences between them that you should know. They include:

• Trading volume shows transactions involving a specific cryptocurrency from various exchanges, while onchain volume shows the movements of a crypto asset on a blockchain network.
• Onchain volume shows wallet-to-wallet transfers and funds deposited into smart contracts, while trading volume only shows crypto transactions conducted on decentralized and centralized exchanges.

How is Onchain Volume Measured?

Blockchain transparency makes it easy to measure onchain volume. What’s more, anyone can access this data and calculate it.

To help you better understand how to measure onchain volume, we will use an example. Let’s say 500,000 BTC has moved between wallets today. In that case, we’ll multiply that number by Bitcoin’s current price ($72,208) to get onchain volume. That is 500,000 * 72,208 = $36.1 billion.

How is Trading Volume Calculated?

Unlike onchain volume, which is accessible on the blockchain, trading volume can be accessed only on exchanges. That means its accuracy heavily relies on accurate and transparent reporting from these crypto trading platforms.

The method for calculating trading volume and onchain volume is similar. For example, if 40,000 BTC has been traded on a particular exchange today, then the trading volume for Bitcoin on that platform is determined by multiplying 40,000 BTC by the coin’s current price ($72,209).

Trading Volume vs. Onchain Volume – Which is More Reliable?

Considering that onchain volume is verifiable and more transparent, it is deemed to be more reliable than trading volume, which can be manipulated by exchanges. Nonetheless, looking at the two metrics before placing trades is advisable.

Why Does Onchain Volume Matter?

Onchain volume is a useful metric as it shows the following:

Market Sentiment: When onchain volume for a particular crypto price is high, it indicates positive investor sentiment and vice versa is true.

Network Health: Rising onchain volume suggests a healthy network, while declining volumes signal a faltering blockchain.

Network Congestion: A high onchain volume signals an increase in transactions, which usually causes network congestion. By analyzing this data, you are able to understand when to use a certain blockchain if you want your transaction to be processed quickly.

Transaction Costs: A rise in onchain transactions can lead to a surge in transaction fees. So, by looking at onchain volume, you can anticipate the fees payable in a given time.

Why Does Trading Volume Matter?

Trading volume is vital due to these reasons:

Trend Confirmation: A sharp increase in trading volume can signal an uptrend, while a declining trading volume can indicate an incoming trend reversal.

Liquidity: A market with a high trading volume boosts deep liquidity, which allows traders to enter and exit that market seamlessly. On the other hand, a crypto market with low trading volume usually lacks liquidity, making it difficult for traders to place trades at optimal prices.

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