Quant Explains How Bitcoin NUPL Cycles Are Getting Less Volatile With Time

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Bit­coin NUPL data sug­gests that the crypto’s cycles are get­ting less sharp­er with time as prof­it tops and loss bot­toms aren’t fol­low­ing a hor­i­zon­tal line.

Bitcoin NUPL Didn’t Exceed The 0.75 “Greed” Mark During This Cycle

As explained by an ana­lyst in a Cryp­to­Quant post, the BTC prof­it and loss cycles shouldn’t be treat­ed with hor­i­zon­tal lines.

The “Net Unre­al­ized Prof­it and Loss” (or the NUPL in brief) is an indi­ca­tor that tells us whether the mar­ket as a whole is hold­ing a net prof­it or a net loss right now.

The metric’s val­ue is cal­cu­lat­ed by tak­ing the dif­fer­ence between the mar­ket cap and the real­ized cap, and divid­ing it by the mar­ket cap.

NUPL = (Mar­ket Cap – Real­ized Cap) ÷ Mar­ket Cap

When the val­ue of this indi­ca­tor is greater than zero, it means the aver­age investor is cur­rent­ly hold­ing some profits.

On the oth­er hand, neg­a­tive NUPL val­ues imply the over­all mar­ket is hold­ing a net amount of unre­al­ized loss at the moment.

Now, here is a chart that shows the trend in the Bit­coin NUPL over the course of the his­to­ry of the crypto:

Bitcoin NUPL

Looks like the value of the metric has surged up and turned positive again recently | Source: CryptoQuant

As you can see in the above graph, the quant has marked the rel­e­vant zones of trend for the Bit­coin NUPL indicator.

In the past, many traders used to believe that cycle tops form when­ev­er the metric’s val­ue surges above 0.75, enter­ing into the “greed” zone.

Sim­i­lar­ly, bot­toms were thought to take place when the indi­ca­tor went below the ‑0.4 mark, reach­ing into the “fear” region.

How­ev­er, the ana­lyst from the post argues that hor­i­zon­tal lines like these shouldn’t be used to mark these cycle tops and bottoms.

Dur­ing the pre­vi­ous two cycles, the top that came after was low­er than the one before. In the cur­rent cycle, the met­ric nev­er crossed into the greed zone and topped out just around the 0.75 lev­el. This could mean that tops are get­ting low­er and low­er with each cycle.

Sim­i­lar­ly, the last two bot­toms also had descend­ing loss amounts. Just a while ago, the NUPL’s val­ue sharply dropped off into neg­a­tive and sub­se­quent­ly rebound­ed back up into pos­i­tive val­ues after form­ing a poten­tial bot­tom. How­ev­er, this low was far from the con­ven­tion­al 0.4 mark.

If this low was tru­ly the bot­tom for this cycle, then it would add fur­ther cre­dence to the idea that prof­it and loss fluc­tu­a­tions in the mar­ket are get­ting less dras­tic with time.

BTC Price

At the time of writ­ing, Bitcoin’s price floats around $24.4k, up 5% in the past week.

Bitcoin Price Chart

The value of the crypto seems to have been moving sideways recently | Source: BTCUSD on TradingView
Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, CryptoQuant.com

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