A quant has pointed out a pattern in a bitcoin on-chain indicator that may imply that the bull phase may be close to over for now.
bitcoin NUPL has been at overheated levels for weeks
In a quick shot from CryptoQuant mailAn analyst has talked about a bearish development that has recently occurred in bitcoin's “Net Unrealized Gain/Loss” (NUPL) indicator.
As its name already suggests, NUPL tracks the net amount of unrealized gains or losses that cryptocurrency investors as a whole currently have. This metric works by reviewing the on-chain history of each token in circulation to see what price it last moved at.
Assuming that the previous transfer of any coin was the last point at which it changed hands, the metric subtracts the price at that time from the current price to find the exact amount of profit or loss you currently have.
The indicator then sums these values for the entire circulating supply to determine the net profit/loss status of the market. Naturally, positive values imply that investors as a whole are in the green, while values below zero imply the dominance of underwater supply.
Now, here is a chart showing the trend of bitcoin NUPL over the past few years:
<img decoding="async" class="alignnone aligncenter" src="https://technicalterrence.com/wp-content/uploads/2024/03/Is-the-Bitcoin-party-over-The-signal-points-to-the.png" alt="bitcoin NUPL” width=”1680″ height=”975″ data-recalc-dims=”1″/>
The value of the metric appears to have been quite high in recent days | Source: CryptoQuant
As shown in the chart above, bitcoin's NUPL has reached very positive levels recently, which is obviously a natural conclusion to the strong rally the cryptocurrency has experienced.
During this increase, the indicator managed to surpass the level of 0.6. However, the quant noted that historically it has been quite rare for the asset to have been able to stay above this mark.
This pattern is visible on the chart as highs have often been found when NUPL has crossed this boundary. The only periods in which the indicator managed to continue exceeding this level in recent years were during the bull runs of 2017 and the first half of 2021.
Even the November 2021 price all-time high (ATH) was reached shortly after the indicator entered this overheating territory. “We have been in the overbought zone for almost three weeks and in the past it took between three and six weeks before a stronger price correction occurred,” notes the analyst.
Therefore, following this historical pattern, a strong correction for bitcoin may be coming in the near future, or may even have already started factoring in the recent price drop.
Generally, profitable investors are more likely to sell their coins and this tendency to sell increases the more their profits increase. This is why the asset is historically likely to experience liquidations at high NUPL values.
btc Price
At the time of writing, bitcoin is trading at around $63,000, down 12% from last week.
<img loading="lazy" decoding="async" class="alignnone size-medium aligncenter" src="https://www.tradingview.com/x/YAtjyBHQ/" alt="bitcoin price chart” width=”1534″ height=”854″/>
Looks like the price of the asset has seen some significant drawdown recently | Source: BTCUSD on TradingView
Featured image from Shutterstock.com, CryptoQuant.com, Chart from TradingView.com
