Bitcoin Price Peaks Indicated by Net Unrealized Profit/Loss

Bitcoin Price Outlook Through Net Unrealized Profit/Loss

Net Unrealized Profit/Loss (NUPL) is an on-chain analysis indicator that intuitively shows whether coin holders are making profits or incurring losses. This metric provides valuable insights into market sentiment and potential price movements.

Bitcoin's NUPL recorded negative values during the crypto winter of 2022, but has maintained positive values since mid-January 2023. Following the launch of Bitcoin spot exchange-traded funds in mid-January 2024, Bitcoin's NUPL exceeded 0.5 from the following month and has since fluctuated between 0.45 and 0.63.

When NUPL exceeds 0.5, it indicates a positive market where most investors are profitable. Based on historical data, there is potential for further price appreciation in this range. However, it's important to remain aware of possible market overheating. This level suggests strong market confidence, as the majority of network participants are in profit, which can lead to sustained bullish momentum. At the same time, elevated NUPL values may signal that the market is approaching a local top, requiring careful monitoring of other indicators.

Understanding Net Unrealized Profit/Loss as an On-Chain Indicator

Net Unrealized Profit/Loss (NUPL) is an on-chain analysis indicator that represents the overall profitability state of a coin and its network. NUPL evaluates the profitability and losses of unrealized (not yet sold) Bitcoin among the total coin supply.

Through NUPL, investors can determine whether the market is overheated or undervalued. This metric serves as a powerful tool for assessing current market conditions and making informed decisions about appropriate buying and selling points. By analyzing NUPL, traders can gain insights into the collective behavior of market participants and identify potential trend reversals.

The indicator is particularly useful because it considers not just current prices, but the actual cost basis of coins held across the network. This provides a more nuanced view of market sentiment than price alone, as it reflects the aggregate profit or loss position of all network participants. Understanding NUPL helps investors contextualize price movements within the broader framework of market profitability.

Calculation Method for Net Unrealized Profit/Loss

The calculation method for NUPL is as follows:

Net Unrealized Profit/Loss = (Market Cap − Realized Cap) / Market Cap

• Market Cap: The current total market value of Bitcoin, calculated by multiplying the current price by the total circulating supply
• Realized Cap: The total market value calculated based on the price when Bitcoin was last moved, representing the aggregate cost basis of all coins

When calculated as a percentage:

NUPL = (Market Cap − Realized Cap) / Market Cap × 100

This formula essentially measures the difference between what the market values Bitcoin at currently versus what holders actually paid for their coins. A positive NUPL indicates that the market cap exceeds the realized cap, meaning holders are collectively in profit. Conversely, a negative NUPL shows that current prices are below the average acquisition cost across the network.

The beauty of this calculation lies in its simplicity and effectiveness. By comparing these two fundamental metrics, NUPL provides a clear snapshot of market profitability that can be tracked over time to identify trends and potential turning points.

Utilizing Net Unrealized Profit/Loss in Coin Trading

NUPL values can be interpreted as follows:

• NUPL > 0: Overall, investors are in a profitable state

When NUPL reaches 0.75, it means the market cap is four times the realized cap (purchase price). This indicates that most acquired coins are in profit realization mode, which can act as selling pressure. At such elevated levels, many holders may be tempted to take profits, potentially leading to increased supply on the market. Historically, NUPL values approaching or exceeding 0.75 have often preceded market corrections.

• NUPL < 0: Overall, investors are experiencing losses

When NUPL reaches -0.5, it means the market cap is half of the realized cap. The value of coins is in a loss state relative to the purchase price, and if this gap is large, it can actually serve as a buying incentive. Negative NUPL values, especially deeply negative ones, often represent attractive accumulation opportunities, as they indicate widespread capitulation and maximum pessimism. Smart money often enters the market during these periods of maximum pain.

Meaning of Net Unrealized Profit/Loss by Stage

NUPL Rising Phase

• Above 0: NUPL exits the 'capitulation' zone and enters the 'hope-fear' zone. This transition marks the beginning of recovery from bear market lows, as holders begin to see their positions return to profitability.

• 0.25 – 0.50: This range represents NUPL entering the 'optimism-anxiety' territory. Market participants are generally profitable but uncertainty remains about the sustainability of the uptrend. This phase often sees increased trading activity as investors debate whether to take profits or hold for further gains.

• 0.50-0.65: This range represents NUPL entering the 'belief-denial' territory. A level of 0.50 indicates that half of Bitcoin's market cap is profitable. This zone typically characterizes mature bull markets where conviction is building but hasn't yet reached euphoric levels.

• 0.65: Indicates that the unrealized profit rate of the Bitcoin network continues to increase. At this level, the vast majority of network participants are in profit, and momentum is strong. However, this also increases the risk of profit-taking.

• Above 0.75: This is where NUPL enters the 'euphoria-greed' territory. According to historical data, levels above 0.75 act as bull market peaks, after which a downtrend may begin. This zone represents maximum optimism and is often associated with market tops, making it a critical level for risk management.

NUPL Declining Phase

• Below 0.75: NUPL exits the 'euphoria-greed' territory. This marks the beginning of a correction phase, as early profit-takers start to outnumber new buyers.

• 0.50: The profitability of the Bitcoin network continues to decline. This level represents a critical support zone where bull markets can either find renewed strength or continue deteriorating.

• 0.25: This range represents NUPL entering the 'optimism-anxiety' territory. Market sentiment shifts from confident to uncertain as more holders slip into loss positions.

• Below 0: The Bitcoin network has more losses than profits. This zone represents a very strong buying opportunity, as it indicates maximum pessimism and capitulation. Historically, accumulation during these periods has yielded significant long-term returns.

NUPL Flow Analysis

• Increasing Trend: Increasing Selling Pressure - This means more investors are starting to make profits. As NUPL rises, the incentive to realize gains increases, potentially creating resistance to further price appreciation.

• Decreasing Trend: Decreasing Selling Pressure - This means investors are increasingly experiencing losses. Declining NUPL often accompanies bear markets, but can also signal approaching bottoms when it reaches extreme levels.

Bitcoin Price Peaks Through Net Unrealized Profit/Loss

Historically, Bitcoin prices have peaked when NUPL reached 0.7 or higher. Similarly, market bottoms formed when NUPL was below -0.2. During the recent market cycle, the peak was 0.63, recorded on November 20, 2024. This historical pattern provides a framework for understanding current market positioning, though it's important to note that each cycle can have unique characteristics. The consistency of these levels across multiple cycles suggests they represent fundamental psychological thresholds for market participants.

Net Unrealized Profit/Loss for Short-Term Holders

On-chain analysis platforms provide NUPL for short-term holders. Short-term holders refer to unspent transaction output values of 155 days or less. This cohort represents more speculative market participants who are typically more reactive to price movements.

Short-Term Holder NUPL = Short-Term Holder Relative Unrealized Profit – Relative Unrealized Loss

How to Interpret Short-Term Holder NUPL

When Short-Term Holder NUPL is High

• Meaning: Short-term holders are seeing significant profits. This situation often occurs during strong rallies when recent buyers quickly enter profit.
• Short-term holders may tend to realize profits, which can increase selling pressure in the market. This cohort is more likely to take quick profits compared to long-term holders.
• If profitable short-term holders sell, prices may decline. Monitoring this metric can provide early warning signals of potential corrections.

When Short-Term Holder NUPL is Low or Negative

• Meaning: Short-term holders are experiencing losses. This typically occurs during corrections or bear markets when recent buyers are underwater.
• If short-term holders experiencing losses sell their assets, this can be a signal of market decline. Capitulation by this group often marks local bottoms.
• If short-term holders continue to experience losses, price declines may persist. However, extreme negative values can also indicate oversold conditions and potential reversal points.

Rapid Changes in Short-Term Holder NUPL

• Volatility Signal: When short-term holder NUPL rises or falls sharply, it signals increasing market volatility. These rapid swings indicate strong emotional reactions among recent market entrants.

Gradual Changes in Short-Term Holder NUPL

• Trend Identification: Gradual changes in short-term holder NUPL indicate emotional changes among short-term investors. Steady improvements suggest building confidence, while gradual deterioration indicates growing pessimism.

Summary

Net Unrealized Profit and Loss (NUPL) represents investors' current unrealized gains and losses, helping to understand market sentiment. Through this metric, investors can predict potential future price adjustment points for assets.

However, when making direct investments, one should not rely solely on the NUPL indicator. It's essential to fully consider various technical analysis tools and macroeconomic variables. NUPL works best as part of a comprehensive analytical framework that includes price action, volume analysis, market structure, and fundamental factors. By combining NUPL with other indicators, investors can develop more robust trading strategies and make better-informed decisions about entry and exit points in the market.

FAQ

What is the Net Unrealized Profit/Loss (NUPL) indicator and how does it help predict Bitcoin price peaks?

NUPL measures the difference between market value and realized value of Bitcoin, reflecting overall investor sentiment. When NUPL reaches extreme levels, it typically signals potential market peaks, helping traders identify optimal exit points and market turning points.

When did NUPL indicator historically successfully signal Bitcoin price peaks?

NUPL successfully predicted Bitcoin price peaks in 2013 and 2021, marking bull market highs. These extreme NUPL levels aligned with significant market tops when investor profits reached maximum levels.

How to use NUPL data to identify Bitcoin overheated markets and potential sell signals?

High NUPL readings indicate Bitcoin market overheating and potential tops, signaling sell opportunities. Low NUPL marks bottoms and buying points. Monitor NUPL trends to identify market turning points and optimize entry/exit timing for better trading results.

What are the advantages of NUPL indicator compared to other technical analysis tools such as RSI and MACD?

NUPL provides comprehensive market analysis by integrating multiple factors, offering more accurate signals than single indicators like RSI or MACD. It captures market sentiment and turning points more effectively, delivering superior trading insights and decision-making accuracy.

When NUPL reaches extreme values, how long does it typically take for Bitcoin price to peak?

When NUPL reaches extreme values between 0.75-0.85, Bitcoin typically peaks within 3 to 6 months. This timeframe is based on historical market patterns and investor behavior cycles during bull market phases.

How should retail investors apply the NUPL indicator in actual trading to identify selling points?

Monitor NUPL levels to gauge market sentiment. Sell when NUPL reaches extreme highs, indicating overvaluation. Combine with price action and trading volume for confirmation. Use NUPL peaks as signals to exit positions and lock in profits before potential reversals.