Relief Rallies, Bull Traps, we are used to these terms, especially in a bear market. When the bullish momentum and the bearish activity fade together, we get confirmations of organic price discovery.
An on-chain indicator signals the local bottom of Bitcoin was $18.5k. Is it the last chance to Buy Bitcoin near the bottom level? Let’s discover 2 indicators that can tell us this.
1) Net Unrealized Profit (NUP)
Net Unrealized Profit (NUP) is a crucial real-time on-chain indicator that tracks the relative valuation of any asset. Mathematically, it is the relative change of the market cap and realized market cap. In other words, it accounts for the supply held by profitable hands.
But what can the NUP number tell us about the market? Historically, a NUP value over 0.7 signals a bull market top, and values below 0 imply a bear market bottom. Is that a fixed rule? No. Because of three reasons:
- Bitcoin as an asset does not have a long history.
- Whales can manipulate bitcoin price action anytime.
- The presence of institutional interest is a new phenomenon.
Ideally, a decreasing NUP value shows the number of investors in profit is shrinking. Investors in loss dominate investors in profit, and a basic investment logic is nobody likes to sell for a loss. When sell-side pressure decline, bitcoin usually trades in a range that will be ideal buy zones.
So, the million-dollar question is, is bitcoin in such a range? The short answer is – ‘probably’! Or we might have missed the exact bottom because tides are shifting.
2) Status Of NUP and Past Performance
In 2018, when the NUP increased to 0.72, the bullish momentum slowed down. Similarly, from January 2019 to May 2019, NUP was less than 0.36. It might seem the values are related, but they are not. 0.72 and 0.36 are values derived naturally from past price action.
So, to add more clarity, in 2018, when NUP peaked above 0.72, it marked the bull market top. Likewise, in 2019, when NUP went below 0.36, it coincided with the bear market accumulation phase or the bottom.
In March 2020, NUP once more dropped below 0.36, which again was a fantastic buying opportunity as Bitcoin rallied to 64k after a year. Even in April 2021, when NUP peaked above 0.72, that almost aligned with the top. Nevertheless, the second phase of the bull run was a surprise for seasoned crypto investors!
Now the NUP has made a higher high, which signals the max pain in the bear market is almost over! The unrealized Profit Ratio currently stands at 0.4, after making a 2-year low at 0.36. Considering past price actions, many on-chain analysts predicted a sub-zero NUP. Even with the high negative sentiments, bitcoin bulls held the zero mark. Unsurprisingly, Bitcoin has recovered because expecting it to go to a certain level is futile.
Even though Bitcoin had some volatile pumps to go from sub-20k to 24k, the recovery of NUP was stable. Does it imply that we have already missed the bottom? In the grand scheme of digital asset investment, there is not much difference between buying at 18k and buying at 20k. Especially since Bitcoin is a high-return investment, it is safe to accumulate in the 20k region.
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