Bitcoin Party Over? Signal Points To End Of Bull Phase

A quant has pointed out a pattern in a Bitcoin on-chain indicator that may imply the bull phase may be close to ending for now.

Bitcoin NUPL Has Been At Overheated Levels For Weeks Now

In a CryptoQuant Quicktake post, an analyst has talked about a bearish development that has recently occurred in the Bitcoin “Net Unrealized Profit/Loss” (NUPL) indicator.

As its name already suggests, the NUPL keeps track of the net amount of unrealized profit or loss that the investors of the cryptocurrency as a whole are holding right now. This metric works by going through the on-chain history of each token in circulation to see what price it was last moved at.

With the assumption that the previous transfer for any coin was the last point it changed hands, the metric subtracts the price at its time from the current price to find the exact amount of profit or loss it is currently carrying.

The indicator then sums up these values for the entire circulating supply to determine the net profit/loss status of the market. Naturally, positive values imply the investors as a whole are in the green, while values under zero imply the dominance of underwater supply.

Now, here is a chart that shows the trend in the Bitcoin NUPL over the past few years:

The value of the metric appears to have been quite high in recent days | Source: CryptoQuant

As displayed in the above graph, the Bitcoin NUPL has attained highly positive levels recently, which is obviously a natural conclusion of the sharp rally the cryptocurrency has gone through.

During this surge, the indicator has managed to breach the 0.6 level. The quant has pointed out, however, that historically, it has been quite rare that the asset has been able to sustain above this mark.

This pattern is visible in the chart, as tops have often been encountered as the NUPL has crossed this boundary. Only periods where the indicator did manage to continue to surge past this level in recent years was during the bull runs in 2017 and first half 2021.

Even the November 2021 price all-time high (ATH) was hit not too long after the indicator entered this territory of overheating. “We have been in the “overbought” zone for almost 3 weeks now and in the past it took between 3 to 6 weeks before a stronger correction in price occurred,” notes the analyst.

Thus, going by this historical pattern, it’s possible that a steep correction may be coming for Bitcoin in the near future, or it may have even already started considering the recent price plunge.

Usually, investors in profit are more likely to sell their coins and this tendency to sell goes up the more their profits swell. This is why historically the asset has been probable to see selloffs at high values of the NUPL.

BTC Price

At the time of writing, Bitcoin is trading at around $63,000, down 12% over the past week.

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