Bitcoin Unrealized Profits Outpace Losses but Short-Term BTC Holders Take a Big Hit
Analyzing Bitcoin's Unrealized Profits & Losses | Credit: Hameem Sarwar
Key Takeaways
- The Net Unrealized Profit/Loss indicator for Bitcoin (BTC) is 0.436.
- Realized losses have spiked, and short-term BTC holders are at a loss.
- How can we use these readings to determine if the market cycle has ended?
Since the Bitcoin price has trended downward for over six months, some holders are at a loss. While the market is still in a general state of profit, it is mostly the short-term BTC holders bearing the brunt of this decline.
Let’s analyze these readings and see what they can tell us about the market’s direction for the rest of the year.
Unrealized Profits and Losses
NUPL is an on-chain metric that shows if the market is in a state of loss or profit. NUPL is calculated by subtracting relative unrealized losses from relative unrealized profits.
A positive NUPL reading implies that unrealized profits exceed unrealized losses. So, the value of all coins bought at a higher price than the current one surpasses that of coins bought at a lower price than the current one. The opposite is true for a negative reading.
Using the UTXO lifespan threshold of above and below 155 days, splitting the NUPL into two cohorts: the long-term (LTH) and Short-Term BTC Holders (STH) is possible.
Currently, relative unrealized profits are 0.475 while relative unrealized losses are 0.039, giving a NUPL reading of 0.436. An interesting characteristic of the current Bitcoin cycle is that relative unrealized losses have not spiked (red circle) as much as they did in the first decline after the 2021 all-time high (black circle).
This is likely because the current decrease is much more gradual than the one in 2021. Many Bitcoins were bought near the current price, lessening the potential spike in unrealized losses.
While the readings straightforwardly show that the market is in a profit state, things become more murky when one examines the long—and short-term cohorts of BTC holders.
Long-Term Holders Sit in Profit
The LTH NUPL shows a reading of 0.572, higher than the 0.436 overall NUPL. Since the indicator uses the 155-day threshold, only BTC bought before April 10 is considered. A closer look shows that only the BTC bought between Feb. 27 and April 10 is higher than the current BTC price.
Every day, more coins bought after April 10 will graduate in this cohort. So, the LTH NUPL may move lower since the Bitcoin price was higher than it currently is for most of April, May, June, and July.
An interesting trait of the indicator is that it moved above 0.75 in every prior market cycle top, while it has not done so in the current one. So, the LTH NUPL suggests the market cycle top is not in yet.
Short-Term BTC Holders Suffer
The exact opposite readings are visible in the STH cohort, which has a reading of -0.09. This is over twice as high as the relative unrealized losses for both cohorts. It suggests that short-term holders are mainly holding at a loss. Still, the STH NUPL readings are less severe than those in previous market cycles.
The current readings are much more similar to the choppy period in September 2023 than the sharp declines of the 2022 bear market or even the July 2021 retracement (black circles). The STH MVRV also gives the same reading .
In the first section, we stated that the relative unrealized losses were 0.039. This means the total unrealized losses are only 3.9% of the Bitcoin market cap, a small proportion historically.
The spike in realized losses can explain this reading. The indicator has increased since February and peaked at nearly $600 million in August. This was the highest value since the absolute bottom on Dec. 2022. Since most long-term holders are at a profit, short-term holders selling at a loss likely catalyzed this increase.
The reading aligns with the relatively small STH NUPL since it shows that most people who were at a loss have already sold. Now, only a portion of short-term market participants are holding at a loss.
This could bode well for the future Bitcoin trend since selling pressure may be reduced. The only way for the BTC price to go lower would be if long-term holders decided to realize their profits and sell.
Better Times Ahead
Despite the ongoing Bitcoin market correction, the market is in a relative state of profit, as evidenced by the NUPL indicator. However, short-term BTC holders are at a considerable loss, both realized and unrealized. Nevertheless, the current readings are much more similar to those in previous market dips than those at the beginning of bearish market cycles. This implies the potential for a more favorable trend for the rest of the year.
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