A quant breaks down how the Bitcoin NUPL indicator may be able to predict the start of a new bull run based on the past pattern.
How the Bitcoin NUPL Metric Can Predict the Start of Bull Run
As one analyst explained in a post on CryptoQuant, the different phases of the NUPL indicator can shed light on the state of the bull run for BTC.
Net Unrealized Profit and Loss (or NUPL for short) is a measure defined as the difference between market capitalization and realized capitalization, divided by market capitalization.
NUPL = (market cap – realized cap) ÷ market cap
In simpler terms, what this indicator tells us is the degree of profit or loss Bitcoin investors as a whole are currently seeing.
When NUPL values are greater than zero, it means that holders are, on average, in profit. On the other hand, the market as a whole is in a state of profit if the value of the indicator is above zero.
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Now, here is a graph that shows the trend of BTC NUPL over the past ten years:
The correlation between the BTC price and the indicator's values | Source: CryptoQuant
As you can see in the chart above, the quant marked three different regions of importance for the Bitcoin NUPL metric.
It seems that whenever the metric broke above the red line, a BTC bull run also started in tandem. The green region, on the other hand, seems to be when the crypto is undervalued and bottom formations are taking place.
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According to the analyst, the yellow region is a separator between bullish and bearish trends. The passage below this bar has historically marked the beginning of a new bear market.
Currently, the Bitcoin NUPL is just above this region, and if the metric drops and crosses below it, a new bearish period may begin. However, the quant noted that this region can also serve as support in the middle of a cycle, as it once did recently.
Today, the price of Bitcoin dipped below the $38,000 mark, continuing its recent slide. As of this writing, the price of the coin is hovering around $37.6,000, down 10% in the past seven days. Over the past month, the crypto has lost 8% in value.
The chart below shows the price trend of BTC over the past five days.
BTC's price seems to have sunk down over the past few days | Source: BTCUSD on TradingView
Featured image from Unsplash.com, charts from TradingView.com, CryptoQuant.com