A seasoned analyst has provided insights into a straightforward tactic for trading Bitcoin, leveraging the historical trajectory traced by two on-chain indicators of the leading digital currency.
This intriguing strategy is built upon patterns unearthed from the Net Unrealized Loss (NUL) and Net Unrealized Profit (NUP), two key metrics that trace the accumulation of unrealized gains and losses by Bitcoin investors. These indicators delve into the transaction backstory of every Bitcoin in circulation, determining the last price it was exchanged at, consequently shaping its present cost basis.
The premise relies on the theory that the last transaction of any given Bitcoin is indicative of the last time it changed ownership. The price at that instant crystallizes the Bitcoin’s current cost basis. Therefore, if a coin’s previous transaction was made at a price less than today’s running price, that coin is currently bearing a profit. The NUP calculates this potential gain by subtracting the previous transaction price from the present market price.
The NUL operates on the same principle, tracking coins whose cost basis exceeds the most recent valuation. To tabulate these dimensions for the entire Bitcoin inventory, these indicators add up the various values and divide it by the current market cap.
To elucidate, the analyst shared an informative graph revealing a recurring pattern in the movement of the Bitcoin NUL. Historically, the NUL has surged above the 0.5 mark when Bitcoin prices have languished near bear market lows. Now, the metric hovers close to zero, indicating minimal unrealized loss held by Bitcoin investors. This aligns with Bitcoin’s trajectory, hitting record highs with every investor’s Bitcoin stakes moving into a profitable zone.
The NUP indicator also echoes a similar pattern, having traditionally risen above the 0.7 mark during significant market peaks, proposing a potential sell-off window when the metric reaches this zone. However, the indicator has not surged past the crucial 0.7 mark despite Bitcoin’s recent rally, suggesting the market isn’t poised for selling as yet according to this strategy.
A closer look at the two indicators unveils that neither precisely flagged the asset’s peaks or troughs. This is particularly evident in the NUP data, where the ‘sell’ signal appeared midway in the bull run. Nonetheless, initiating purchases when the NUL signals and selling at escalated NUP values would have eventually turned a profit. Hence, this emerging strategy remains of considerable interest for Bitcoin trading.
However, the true test of its efficacy lies in whether these patterns can maintain their predictive power in the present Bitcoin trading cycle. As of now, bitcoin hovers around $69,400, marking a 2% dip over the last 24 hours. The asset’s value, despite this short-term fluctuation, seems to be broadly stable, trending sideways for the moment.
