Many staunch HODLers refuse to sell their Bitcoins. Investors don’t sell when the market is hot and bullish – they don’t realize profits. They also don’t sell when the market is cold and bearish – they don’t realize losses. They HODL. That’s what gives us clues today about how much longer the cryptocurrency winter may last and whether the BTC bottom is already in place.
Today’s on-chain analysis looks at several indicators that show the relative level of unrealized losses and profits that investors are recording in the ongoing bear market. There are a number of arguments and similarities to previous cycles that suggest that the bottom of the BTC price has been reached and the ongoing accumulation is at an advanced stage.
Unrealized losses: macro bottom or another sell-off?
The Relative Unrealized Loss indicator is defined as the total loss in USD of all existing coins whose price at the time of realization was higher than the current price. The indicator is normalized by market capitalization, so it can be used to compare different cycles of the Bitcoin price.
On the long-term chart, we can see that the indicator reached its highest values at exactly the same time when the BTC price was dropping to historical macro lows (red lines and circles). Subsequent breakouts of the Relative Unrealized Loss indicator (blue lines) did not break through the previous peak, and the Bitcoin price did not fall below the previously reached low.
Despite this, the Relative Unrealized Loss is much lower in this cycle than in previous ones. In the current bear market, the indicator peaked at 0.491 on July 4, 2022. This happened shortly after BTC hit a low of $17,600 on June 18, 2022.
In contrast, for the 2015 and 2018 bear markets, respectively, this indicator peaked at 0.859 and 0.718. In both cases, this happened a few days after the historical macro lows.
Therefore, it can be concluded that as long as the Relative Unrealized Loss remains below the 0.491 level, the hypothesis that Bitcoin has already reached the macro bottom of the current bear market remains probable. If, on the other hand, there is a strong sell-off in the coming weeks and the indicator rises above the previous peak, the macro bottom may be reached much lower.
Unrealized profits: hidden bullish divergence same as last 2 cycles
The second indicator that draws a similar picture of the ongoing BTC price accumulation is the Relative Unrealized Profit. This indicator – like unrealized losses – is defined as the total profit in USD of all existing coins whose price at the time of realization was lower than the current price. Here, too, normalization against market capitalization is applied.
Also in this indicator, we see some correlation between the three historical bear markets. However – unlike in the previous indicator – Relative Unrealized Profit did not reach extremely low values at the time of the historical macro lows of the BTC price (red lines).
On the contrary, even after Bitcoin reached a bottom, unrealized profits continued to fall, creating a type of hidden bullish divergence (green lines). Despite the fact that the BTC price was generating higher lows, the indicator reached lower and lower values (blue lines). The lower the indicator fell, the more advanced the accumulation phase of the market bottom.
A similar situation is taking place in the current bear market. The Relative Unrealized Profit indicator is steadily decreasing, but the BTC price is not falling below the bottom at $17,600. If this trend continues, the accumulation phase may soon end and Bitcoin will start an upward trend.
NUPL returns to the red area but does not fall below the bottom
Confirmation of the above arguments is provided by the famous Net Unrealized Profit/Loss (NUPL) ratio. Which is the difference between the previous ratios. To be precise, NUPL is the difference between relative unrealized profit and relative unrealized loss.
Currently, NUPL is again in the red capitulation area, from which it broke out temporarily in July-August 2022. Red is psychologically interpreted as the maximum fear and depression on the market. At the same time, it indicates the historically best areas to buy Bitcoin.
The value of NUPL did not fall below the lows generated at the macro bottom of the BTC price. According to the two previous bear markets. These were -0.528 in January 2015 and -0.388 in December 2018, respectively.
At the bottom of the Bitcoin price on June 18, 2022, the NUPL value was -0.108. So far, it has not fallen any lower. Therefore, if Net Unrealized Profit/Loss (NUPL) manages to stay above this level, there is a chance that the accumulation of this cycle is coming to an end and BTC will soon start a new bull market.
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