Bitcoin: Net Unrealized Profit/Loss

BTC News #18

I hope you all had an amazing holiday. A new year is upon us and Bitcoin is looking ripe for explosive growth in 2021.

First, I want to welcome all of our new subscribers to the BTC News tribe. We have recently surpassed 400 subscribers! <3

Yesterday, investor and Real Vision CEO tweeted this:

This tweet received lots of attention both positively and negatively. I’d recommend reading Willy Woo’s reply for a metric driven response. Regardless, it inspired me to search deeper into the metrics behind the current market cycle.

Using Glassnode, I came across Net Unrealized Profit/Loss (NUPL). Glassnode defines NUPL as, “Net Unrealized Profit/Loss is the difference between Relative Unrealized Profit and Relative Unrealized Loss. This metric can also be calculated by subtracting realized cap from market cap, and dividing the result by the market cap.”

To break this down, we must go back to UTXO’s and realized cap. Bitcoin that is in unrealized profit is worth more currently than it was when it was last moved. Bitcoin that is in unrealized loss is worth less currently than it was when it was last moved. By adding up the total amount of the profit and loss of each Bitcoin and dividing each by market cap we get the relative unrealized profit and relative unrealized loss. The difference between the two is the net unrealized profit/loss.

It can also be calculated using market cap minus realized cap divided by market cap.

How does this information help us find market tops?

Using net unrealized profit/loss we can analyze investor sentiment at the current time in Bitcoins market cycle.

When the net unrealized profit/less gets above 0.75 it signals a Euphoria - Greed stage in the market cycle and has predicted a market top every time highlighted by the light blue lines. The reason for this is that price is rising and increasing market cap while investors aren’t taking profits. This creates a massive euphoric sentiment in the market until investors finally start to take profits.

Currently, we’re in the Belief - Denial phase. Looking back into 2017, Bitcoin hit this phase at $5622 and increased to $20,000. According to Glassnode, if we experience similar patterns this market cycle we could see Bitcoin at over $65,000.

Here is a closer look at 2020:

Let’s connect on Twitter. Looking forward to hearing your thoughts and feedback.

In the news…

Resources I Use

Glassnode - Track Bitcoin on-chain metrics

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Nothing in this article is investment advice. I’m not a financial advisor. Do not make investment decisions based on what is in this article or any other article written by BTC News or Blockedia.