Bitcoin (BTC) Net Unrealized Profit/Loss (NUPL) Between Fear and Optimism

Bitcoin price has been correcting since reaching a local peak at $28,580 on October 2. Since then, the bears have managed to push down the price of the largest cryptocurrency into the $26,500 area. What’s next for the BTC price?

At the same time, the well-known on-chain Net Unrealized Profit/Loss (NUPL) indicator shows the ongoing battle between areas of fear and optimism. Despite a bullish start of 2023 and an escape from the capitulation zone, Bitcoin price corrections continue to return to the fear area.

Will the Bitcoin Risk Index, which has currently reached its lows, finally keep the cryptocurrency market in the optimism zone and initiate a new bull market?

NUPL Between Fear and Optimism

Net Unrealized Profit/Loss (NUPL) is an on-chain metric that calculates the difference between relative unrealized profit and relative unrealized loss.

Another way to calculate this ratio is to subtract realized market capitalization from total market capitalization and divide the result by the latter.

The NUPL chart contains five horizontal areas, which are interpreted from the market psychology perspective: from the red capitalization level to the blue area of euphoria and greed.

The intermediate areas have both bullish and bearish interpretations depending on whether the chart crosses the area during a bull or bear market.

Currently, Bitcoin NUPL is in the yellow, rather neutral area of optimism at 0.26. At the same time, the indicator is close to the orange level of fear, which begins after a drop below 0.25.

Net Unrealized Profit/Loss for Bitcoina / Source: Glassnode

As we can see, the area of optimism is the highest level the Bitcoin NUPL has been at since early 2023. As recently as mid-January, the indicator was consolidating at the lowest capitulation level, only to become optimistic as the cryptocurrency market recovered quickly.

However, the specter of a deeper correction and a test of the $20,000 area could still drive NUPL back deep into fear territory.

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Short-Term Holders Continue to Capitulate, but There Are Signs of a Reversal

In contrast, looking at the same indicator for short-term holders (STH), we see that new investors are still experiencing capitulation.

NUPL for STH takes into account only those UTXOs that are younger than 155 days. In other words, it calculates the unrealized profit/loss for new Bitcoin holders.

This chart version reveals the brutal truth that most new investors are still underwater. Admittedly, the beginning of the year brought them a period of relief and a return to the area of fear. What’s more, short-term NUPL was even in the area of optimism for a while (March 20).

However, since mid-August, short-term holders have been experiencing continued capitulation.

NUPL STH / Source: Glassnode

Despite this, well-known on-chain analyst @_Checkmatey_ published a chart on X that may contain optimistic signals. He pointed to the NUPL-related Profit/Loss Momentum indicator for STH. In his opinion:

“The bears took it negative on the sell-off from $29k to $26k. However, they failed to take it lower. Despite significant losses being taken by the market (the most bearish the market has been since FTX).”

Realized Profit/Loss Ratio Momentum
Realized Profit/Loss Ratio Momentum / Source: X

He adds that the indicator has turned green again, signaling a possible bounce in STH profit/loss momentum. Therefore, the analyst concludes, this could lead to two possible scenarios: the last profit-taking before a deep correction or the return of strength.

Finally, he adds that personally – in the context of the macro market – he folds towards the latter scenario.

Bitcoin Low-Risk Index

Finally, another on-chain analyst, @Negentropic_, recently published on X the so-called Bitcoin Risk Index. According to his data, the BTC price is today in the blue area of low risk, where it oscillates around 0.

Bitcoin Risk Index
Bitcoin Risk Index / Source: X

In his view, this metric suggests that after the recent declines, further deeper downward movement is “improbable at this stage.”

This interpretation remains consistent with the current declines, during which the bears have been unable to push the BTC price below $26,000. If this level is held and the signals from NUPL are confirmed, the cryptocurrency market could soon experience a bullish rebound.

However, if the $26,000 area is lost, a deeper correction is highly likely. It will probably lead NUPL back to the area of fear. Short-term holders, on the other hand, will still be far from any profit.

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