- The NUPL indicated that Bitcoin was in the optimism stage.
- Reserves on exchanges reduced, indicating preparation for a long rally.
Bitcoin’s [BTC] hostility against succumbing to $20,000 has sparked discussions about the possibility of an early bull market. While BTC’s Year-To-Date (YTD) performance has been relatively positive, several investors have pointed out the Bitcoin halving as a catalyst to push a largely profitable season.
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However, there is one metric that has historically proven to be instrumental in identifying bull cycles and their early stages. And this is the Net Unrealized Profit and Loss (NUPL).
BTC is in the pre-belief stage
The NUPL is calculated as the difference between the relative unrealized profit and the relative unrealized loss. According to Glassnode, this metric was 0.33 at press time. But in times past, the metric has been vital in picking periods of capitulation, optimism, and euphoria.
Interestingly, these sentiments are highlighted by different colors and seem to have a consistent route. For instance, after the 2015 capitulation (red), Bitcoin moved into a realm of hope (orange). The next on the line was optimism (yellow). And finally, belief (green) confirmed an uptrend that put many holders in gains.
It was a similar case between 2018 to 2019 and 2020 to 2021. At this point, the BTC price moved significantly higher from serious downtrends. Now, the NUPL signifies massive accumulation. This was because it had bounced into the optimism area after moving out of the capitualtion and hope zone.
If the NUPL continues to follow history, then it could take only a couple of months for the bull market to start properly.
From the reserves to the future
Meanwhile, the optimism in the market was also highlighted by on-chain analyst SimonaD. The analyst, explaining her stance, pointed out the Bitcoin reserves on Coinbase.
According to SimonaD, BTC reserves on the exchange have decreased by 40% since May 2022. She also highlighted that during this period, BTC went through correction up till its recent contraction in volatility.
When this happens, it means that investors have the conviction that Bitcoin’s value as a store of exchange could improve soon. Therefore, these investors are taking big bets on the future price action of Bitcoin.
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Also, the coin price may become more volatile. SimonaD in her analysis published on CryptoQuant said,
“Taking into account the level of outflows and the decrease in the Bitcoin reserve, we can consider that the accumulation of Bitcoin has been relatively constant on the Coinbase exchange from May 2022 until now, which can only be positive for Bitcoin.”