Bitcoin Indicator: Net Unrealised Profit/Loss
Facing the rapid expansion of the crypto space and the recent huge price actions on Bitcoin and altcoins, investors might find it helpful to look at several indicators which can help evaluate the current market situation. In this article, we present an indicator called the Relative Unrealized Profit/Loss chart, which gives an insight into whether the network as a whole is in profit or loss.
Disclaimer The content provided in this article does not serve as financial advice. Readers should always do their own research and make their own financial decisions, and are 100% responsible for their own actions.
The Net Unrealized Profit/Loss is derived from Market Value and realised Value. Specifically, it is calculated as follows:
NUPL = Relative Unrealized Profit−Relative Unrealized Loss
= (Market Cap−Realized Cap) / Market Cap
As shown in the graph, the market follows certain cycles, and different phases alternate through time. As a general trend, the further away NUPL is from zero, the closer the market trends towards tops or bottoms. As such, it helps investors decide when to enter or exit the market. For example, when the network is in high profit, some people might start to cash in and sell off some of their coins, which might cause the price to drop.
However, just because the network is in high profit, it doesn’t mean that the price will necessarily go down. In 2013 and 2014 for example, the network never really came down to the orange/red area. When the prices are high, they might go up even higher before they come crashing down (if they do). Likewise, when NUPL is in the red zone, it could still go down deeper. Therefore, decisions should not be solely based on this chart. Having said that, it does show that the market follows certain cycles and with a well thought-out plan, one can make incredible gains.
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