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Bitcoin has seen yet another bounce in the past day, adding to the recent series of rebounds. Here’s what on-chain data says regarding if BTC is going anywhere with them.
Bitcoin Realized Profit/Loss Ratio Could Shed Light On Broader Dynamics
In its latest weekly report, the on-chain analytics firm Glassnode has discussed about the recent trend in the Realized Profit/Loss Ratio for Bitcoin, which is an indicator that can be useful to study how investors are reacting to price volatility.
The metric measures, as its name already suggests, the ratio between the amount of profit and that of loss being realized by the holders or addresses as a whole.
The indicator works by looking at the transaction history of each coin being sold on the network to find what price it was transferred at prior to this sale. If this previous selling value is less than the latest spot price for any token, then the metric includes it under the profit volume.
The total profit realized in the sale of the coin is assumed to be equal to the difference between the two prices. The indicator calculates this value for all coins belonging to the profit volume and takes a total sum to determine the scale of profit realization happening across the blockchain.
Similarly, the Realized Profit/Loss Ratio also finds the total amount of loss being realized by referring to the sales of the coins of the opposite type (that is, the tokens with the last transaction value higher than the current spot price). Then, it takes the ratio between the two sums, to estimate the net situation for the sector.
During the last couple of months, Bitcoin has been going through a phase of bearish price action. Here’s what investor trading behavior has been like in this period, according to the Realized Profit/Loss Ratio:
As the analytics firm has highlighted in the chart, the indicator has seen dips under the 1 mark during each of BTC’s recent lows. A value in this region corresponds to loss-taking being more dominant than profit-taking.
“This imbalance typically marks a degree of seller exhaustion, where downside momentum fades as sell-side pressure is absorbed,” explains Glassnode. Due to this reason, capitulation tends to help BTC arrive at local bottoms.
From the graph, it’s visible that the cryptocurrency also benefited from this effect during the recent bursts of loss realization, as its price found a rebound following each of them.
These Bitcoin rebounds, however, have so far not been anything sustained. Will they eventually culminate into a return of proper bullish momentum, or are they only dead-cat bounces on the way down? To tackle the question, the analytics firm has referred to a long-term view of the Realized Profit/Loss Ratio.
As shown in the above chart, the 90-day simple moving average (SMA) of the Bitcoin Realized Profit/Loss Ratio has been sharply trending down recently, despite the jumps in profit realization that have come on the short-term view.
“These brief profit-driven surges have failed to reverse the broader downtrend, suggesting that the macro picture remains one of generally weaker liquidity and deteriorating investor profitability,” notes Glassnode.
So, as for whether Bitcoin has been witnessing a shift towards bullish momentum with the recent rebounds, the answer is seemingly no, at least from the perspective of the Realized Profit/Loss Ratio.
BTC Price
At the time of writing, Bitcoin is trading around $83,600, down almost 2% in the last seven days.
Featured image from Dall-E, Glassnode.com, chart from TradingView.com
Keshav is currently a senior writer at NewsBTC and has been attached to the website since June 14, 2021.
Keshav has been writing for many years, first as a hobbyist and later as a freelancer. He has experience working in a variety of niches, even fiction at one point, but the cryptocurrency industry has been the longest he has been attached to.
In terms of official educational qualifications, Keshav holds a bachelor’s degree in Physics from one of the premier institutes of India, the University of Delhi (DU). He started the degree with an aim of eventually making a career in Physics, but the onset of COVID led to a shift in plans. The virus meant that the college classes had to be delivered in the online-mode and with it came free time for him to explore other passions.
Initially only seeking to make some beer money, Keshav unexpectedly landed clients offering real projects, after which there was no looking back. Writing was something he had always enjoyed and to be able to do it for a living was like a dream come true.
Keshav completed his Physics degree in 2022 and has been focusing on his writing career since, but that doesn’t mean his passion for Physics has ended. He eventually plans to re-enter university to obtain a masters degree in the same field, but perhaps only to satiate his own interest rather than for using it as a means to find employment..
Keshav has found blockchain and its concepts fascinating ever since he started going down the rabbit-hole back in 2020. On-chain analysis in particular has been something he likes to research more about, which is why his NewsBTC pieces tend to involve it in some form.
Being of the science background, Keshav likes if concepts are clear and consistent, so he generally explains the indicators he talks about in a bit of detail so that the readers can perhaps come out having understood and learnt something new.
As for hobbies, Keshav is super into football, anime, and videogames. He enjoys football not only as a watcher, but also as a player. For games, Keshav generally tends towards enjoying singleplayer adventures, with EA FC (formerly FIFA) being the only online game he is active in. Though, perhaps due to being ultra-focused on the game, he is today a semi-pro on the EA FC scene, regularly participating in tournaments and sometimes even taking back prize money.
Because of his enthusiasm for anime and games, he also self-learned Japanese along the way to consume some of the untranslated gems out there. The skill didn’t merely remain as just a hobby, either, as he put it to productive use during his exploration for small-time gigs at the start of COVID, fulfilling a couple of Japanese-to-English translation jobs.
Keshav is also big into fitness, with agility and acceleration-related workouts making a big part of his program due to the relevance they have in football. On top of that, he also has a more traditional strength based program for the gym, which he does to maintain an overall fitness level of his body.
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