Bitcoin (BTC) Net Unrealized Profit/Loss (NUPL): Balancing Fear and Optimism

Bitcoin (BTC) Net Unrealized Profit/Loss (NUPL) Between Fear and Optimism

Bitcoin’s price correction began after reaching a local peak of $28,580 on October 2, pushing it down to the $26,500 range. We delve into the future prospects for BTC amidst this trend.

Simultaneously, the renowned on-chain Net Unrealized Profit/Loss (NUPL) indicator reveals an ongoing battle between fear and optimism. Despite a bullish start in 2023 and an escape from the capitulation zone, Bitcoin’s price corrections often revert to fear.

Can the Bitcoin Risk Index, now at its lowest, shift the cryptocurrency market towards optimism, potentially sparking a new bull market?

NUPL: Balancing Fear and Optimism

Net Unrealized Profit/Loss (NUPL) is an on-chain metric that calculates the difference between relative unrealized profit and relative unrealized loss.

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Another method calculates this ratio by subtracting realized market capitalization from total market capitalization and dividing the result by the latter.

The NUPL chart comprises five horizontal areas, interpreted from a market psychology standpoint, ranging from the red capitulation level to the blue zone of euphoria and greed.

The intermediate areas have both bullish and bearish interpretations, depending on whether the chart crosses these areas during bull or bear markets.

Presently, Bitcoin’s NUPL is in the yellow, a relatively neutral optimism zone at 0.26. However, it is teetering on the edge of the orange fear level, which begins below 0.25.

This marks the highest level of optimism Bitcoin NUPL has reached since early 2023. Yet, as recently as mid-January, the indicator lingered at the lowest capitulation level before turning optimistic as the crypto market swiftly recovered.

Nevertheless, the potential for a deeper correction, testing the $20,000 range, could potentially drive NUPL back into fear territory.

Short-Term Holders’ Capitulation and Signs of Reversal

On the contrary, examining the same indicator for short-term holders (STH), we observe that new investors are still grappling with capitulation.

STH NUPL considers only UTXOs younger than 155 days, calculating unrealized profit/loss for new Bitcoin holders.

This version of the chart reveals the stark reality that most new investors remain underwater. Although there was a brief return to fear earlier in the year, even reaching optimism briefly around March 20, STH has been consistently in a state of capitulation since mid-August.

However, on-chain analyst @Checkmatey shared a chart on X, indicating potentially optimistic signals. He referred to the NUPL-related Profit/Loss Momentum indicator for STH:

“The bears turned it negative during the sell-off from $29k to $26k. However, they failed to push it further down, despite significant market losses (the most bearish the market has been since FTX).”

He suggests that the indicator has shifted to green again, indicating a potential rebound in STH profit/loss momentum. Therefore, he proposes two potential scenarios: the last round of profit-taking before a deep correction or a resurgence in strength. He leans towards the latter, especially in the macro market context.

Bitcoin Low-Risk Index

Lastly, on-chain analyst @Negentropic_ introduced the Bitcoin Risk Index. According to his data, BTC’s price is currently in the low-risk blue zone, oscillating around 0.

He believes this metric suggests that further significant downward movement is “improbable at this stage.” This interpretation aligns with recent events where bears couldn’t drive BTC below $26,000. If this level holds and NUPL signals align, a bullish rebound may be on the horizon.

However, a loss of the $26,000 area could usher in a deeper correction, likely pushing NUPL back into fear. Short-term holders may continue to grapple with losses.

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