The continual ebb and flow of the cryptocurrency market has once again taken an intriguing turn. The most notable currency, Bitcoin, has seen a notable reduction in profitable supply, aligning with a stark plunge in the value of the currency to around $65,000.
Renowned data analyst, James Van Straten, shed light on the current Bitcoin climate, pinpointing a 10% portion of Bitcoin supply now facing a disappointing state of loss. The significant on-chain marker to focus on is the ‘Percent Supply in Profit’, which monitors the percentage of circulating Bitcoin supply boasting an unrealized gain.
The methodology behind this intriguing metric involves a deep dive into the historical transactions of all Bitcoin coins in circulation. Assumptions are then made based on past transactions being a change of ownership, thereby permitting the last sales figure to represent the coin’s cost basis.
Profitability is therefore determined in relation to the current spot price of Bitcoin. ABC would find itself in the profitable category if its cost basis is less than the current Bitcoin cost. Fundamentally, the ‘Percent Supply in Profit’ includes all such coins and measures their ratio in relation to the entire Bitcoin supply. The antithesis to this gauge, the Percent Supply in Loss, collates all coins that do not meet this stipulation.
Since the total Bitcoin supply must amass to 100%, the Percent Supply in Loss can be swiftly calculated with a simple deduction of the Percent Supply in Profit from this total.
A recently shared graph exhibits a stark decline in the Bitcoin Percent Supply in Profit over the preceding months. The indicator reveals a sharp decline, precipitated by a sizeable setback in cryptocurrency prices, plunging to approximately 90%. This indicates that, at present, around 10% of the Bitcoin supply is operating at a loss. Interestingly, the last time such levels were recorded was back in late March, when the currency found its low point.
Earlier records had shown the Percent Supply in Profit pushing eagerly towards the 100% mark, illustrating a new all-time high (ATH) due to the juiced prices, allowing the supply to firmly position itself out of the red.
A general rule within the cryptocurrency market is that investors in a strong profit position are more inclined to sell their coins, leading to an increased likelihood of a mass selloff the more investors find profitable return. This is the reason why the Percent Supply in Profit tends to lead to tops during periods of high profitability.
Paradoxically, the markets are more liable to bottom out when investor profitability takes a downturn. While the current profitability rate of 90% is still comparatively high, it’s not uncommon during periods of high demand and exploration of ATHs. Given the recent cooling of profitability compared to previous levels, there may be a positive outcome for the rally’s opportunity to continue, as it did in the previous month.
As of this report, Bitcoin has been trading at roughly the $65,700 mark, down over 5% from the preceding week. A careful view of the Bitcoin trading landscape reveals the price of this notorious virtual asset appears to be in a continual tumble over the last few days.
