- The NUPL indicated that Bitcoin was in the optimistic phase.
- Reserves on exchanges lowered, signaling preparation for a long rally.
From Bitcoin [BTC] hostility to succumbing to $20,000 has sparked debate over the possibility of an early bull market. While BTC’s Year-To-Date (YTD) performance has been relatively positive, several investors have pointed out that the Bitcoin halving is a catalyst for a largely profitable season.
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However, there is one metric that has historically been proven to play an important role in identifying sire cycles and their early stages. And this is the net unrealized profit and loss (NUPL).
BTC is in the pre-belief phase
The NUPL is calculated as the difference between the relative unrealized gain and the relative unrealized loss. According to Glassnode, this metric was 0.33 at the time of writing. But in the past, the yardstick was vital in choosing periods of capitulation, optimism, and euphoria.
Interestingly, these feelings are emphasized by different colors and appear to have a consistent route. For example, after the capitulation of 2015 (red), Bitcoin moved into a realm of hope (orange). Next on the line was optimism (yellow). And finally, conviction (green) confirmed an uptrend that brought profits to many holders.
Source: Glassnode
It was a similar case between 2018 and 2019 and between 2020 and 2021. At that time, BTC price moved significantly higher after severe downtrends. Now the NUPL means mass accumulation. This was because it had bounced into the area of optimism after moving out of the zone of capitulation and hope.
If the NUPL continues to follow history, it could only be a few months before the bull market kicks off properly.
From the reserves to the future
Meanwhile, the market’s optimism was also highlighted by on-chain analyst SimonaD. Explaining her position, the analyst pointed to Bitcoin reserves on Coinbase.
According to SimonaD, BTC reserves on the exchange have declined by 40% since May 2022. She also emphasized that BTC went through a correction to the recent one during this period contraction in volatility.
Source: CryptoQuant
When this happens, it means that investors have a belief that Bitcoin’s value as a medium of exchange could improve quickly. That’s why these investors are taking big bets about Bitcoin’s future price action.
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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 outflow and decrease in Bitcoin reserve, we can assume that Bitcoin accumulation has been relatively constant on the Coinbase exchange from May 2022 until now, which can only be positive for Bitcoin. “