As the price of Bitcoin rises, more and more on-chain signals are pointing to an overheated cryptocurrency market. These signals have proven particularly relevant in the context of Bitcoin’s impending halving.
BeInCrypto provides four on-chain signals that indicate the possibility of an imminent modification. This is especially relevant in light of the current price action, which shows many similarities to the 2019 fractal.
At the time, BTC price also had a strong upward trend, but suffered a major correction a few months before the halving. Does on-chain data support these predictions? Is the halving period correlated with the decline in Bitcoin price?
On-chain signal: NUPL enters the faith zone.
In addition to numerous technical similarities between the current Bitcoin market situation and the 2019 fractal, on-chain analysis also points out similarities. The first two on-chain signals are related to the famous NUPL (Net Unrealized Profit/Loss) indicator.
NUPL is the difference between relative unrealized profit and relative unrealized loss. This ratio can also be calculated by subtracting realized capital from market capitalization and dividing the result by market capitalization. Additionally, NUPL is available in different variants including all market investors, long-term holders (LTH), and short-term holders (STH).
Read more: Bitcoin Halving Cycle and Investment Strategy: What You Need to Know
Looking at the basic index version of the chart, we can see that NUPL is in the green belief zone in December 2023 and January 2024. During a mature bull market, this area represents a healthy market with a strong upward trend.
However, historically, the first entry into this zone after a macro bottom (red circle) in the previous cycle indicates that a correction is imminent. In fact, after first reaching the area of belief (blue circle), the decline followed quite quickly. NUPL will then return to the yellow zone of optimism.
However, in 2019 and early 2020, NUPL fell back to its lowest levels in the orange (hope) and red (surrender) zones. If history rhymes, after a short-term presence in green territory, the upcoming correction on the NUPL chart could hint at a decline in Bitcoin price.
It is worth adding that a similar situation appears in the NUPL chart for Long Term Holders (LTH). This category includes addresses that hold assets for at least 155 days. A correction also occurred on the first brief visit to the green zone after the macro low.
Realized gains reminiscent of 2019 breakout
The on-chain signals we analyze are also considered indicators correlated to NUPL, but show realized P&L instead of unrealized P&L. Net realized profit or loss refers to the net profit or loss of all coins transferred and is defined as the difference between realized profit and realized loss.
The closer the graph reaches the green area, the larger the realized profits recorded by Bitcoin market participants. Conversely, many investors recognize a loss by selling BTC when the red bar is long.
There is a big change in the Net Realized Profit and Loss indicator chart. It follows a long-term upward trend and is similar to the situation in 2019 (blue circle). In the previous cycle, this led to a 53% correction, which was later made worse by the COVID-19 crash (red arrow).
If a similar scenario were to materialize, Bitcoin price could return to the $23,000 – $28,000 range before resuming its upward trend. This is even more likely because, as in 2019, the breakout occurred months before Bitcoin’s halving.
On-chain signal: UTXO percentage of profits enters oversold territory
The final on-chain signal hinting at a possible imminent BTC price correction is UTXO’s profit ratio. This is simply the percentage of unspent transaction output (UTXO) whose price is lower than the current price at the time of creation. In other words, this indicator shows the percentage of BTC addresses that are currently making a profit.
Looking at the long-term chart, levels above 95% are marked in red. Here too, almost all UTXOs took profits amid a strong upward trend. Moreover, with Bitcoin hitting an all-time high (ATH), UTXO is making 100% profit.
On the other hand, after bouncing off the macro lows of the previous cycle in 2019, the situation on this chart is similar to the signals on the NUPL chart. The timing before Bitcoin’s next halving is similar. We see a short-term visit to the red oversold area and continued correction.
If this scenario is repeated, the first quarter of 2024 could be a period of decline for the cryptocurrency market. This is especially possible due to the pre-halving hype and euphoria following the approval of the spot Bitcoin ETF.
Read more: What is Bitcoin Halving?
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