That is correct.
I had 85 dogs like this at one point, and all chains were fine (this is clearly shown in my book).
The only way your chain is snagging would be if you don't have a swivel at the collar; that is the whole point of the swivel: to prevent the chain from bunching-up.
You don't ever need to dig a hole; all you need to do is sledge-hammer the axle down till it's flush with the earth.
Jack