Data from Glassnode found that Bitcoin entered the „zone of confidence“ for the first time since the top of July 2019, indicating that a bullish cycle is approaching.
Bitcoin analysts say BTC metrics are in the ‚zone of confidence‘ for the first time in 15 monthsMARKETING
Bitcoin (BTC) may be in the early stages of a major new high cycle, a key metric in the chain suggests on 27 October. The dominant cryptomeda has entered the „zone of confidence“, which historically marked the beginning of explosive rallies.
According to Glassnode, the last time Net Unrealized Profit/Loss (NUPL) reached the zone of confidence was in June 2019. In the following month Bitcoin rose from around US$7,500 to US$13,868 by over 80%.
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The NUPL of Bitcoin on top of its historical daily chart. Source: Glassnode
What is NUPL and why does it mean the start of a Bitcoin high run?
The NUPL metric essentially measures how many Bitcoins holders make a profit or lose. If the metric goes up, it means more investors are profitable, as they have bought BTC.
Glassnode researchers calculate the NUPL by valuing the price of the Bitcoin when it enters a new address.
As a buyer needs to keep BTC at a new address, newly created addresses usually mean newly purchased BTC. The researchers explained:
„The number of UTXOs in profit/loss is calculated directly: we simply count all existing UTXOs whose price at the time of creation was lower or higher than the current price, respectively“.
Today, over 50% of Bitcoin’s market capitalisation is represented by unrealized profits. This means that the vast majority of BTC owners and investors make a profit.
Although the metric can be interpreted negatively because investors may start selling, historically, the NUPL would have to rise much higher to signal a top. Glassnode writes:
„Bitcoin Investor Sentiment: Profit / Unrealised Net Loss (NUPL) was in the ‚zone of confidence‘ last week. Today, over 50% of BTC’s market capitalisation consists of unrealized profits – a level not seen since August 2019“.
Over the course of 2017, Bitcoin remained in the zone of confidence for an extended period compared to the 2019 rally. There is a possibility that a similarly extended accumulation phase could emerge in 2021 because of the post half-reduction cycle.
Analysts usually attribute the 2017 peak to the halvings cycle. In July 2016, Bitcoin experienced its second halving. Since halving cuts the rate at which the new BTC is extracted, it directly impacts its supply. One year after the event, BTC started to go up.
The last halving took place in May 2020. If a similar pattern ensures, BTC may continue to rise throughout 2020 until the second half of 2021.
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The psychology of a market cycle and the area of belief. Source: TradingView.com
What analysts say about the short-term price trend of BTC
In the short term, analysts and traders expect Bitcoin’s price to fall back in a healthy consolidation phase.
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Researchers at Santiment said that online and social media metrics show worrying signs, possibly because BTC is getting overheated. They said:
„This weekend was all about how to analyze the sustainability of BTC over $13k. From now on, our on-chain and social media metrics are showing more signs of concern than encouragement. ”
Unlike the 2017 bullish run, BTC’s current rise was more sustainable. It has established several key levels of support and endurance, which diminishes the chances of a massive correction.