In this article, BeInCrypto will analyze bitcoin and Ethereum on-chain metrics. More specifically, the Net Unrealized Profit/Loss (NUPL) values, to try and determine if the market is overheated.
Despite increasing considerably, the current NUPL value for Bitcoin (BTC) is lower than any of those reached during the previous four market peaks.
Similarly, the NUPL value for Ethereum (ETH) is considerably lower than that during the 2016, 2017, and 2018 peaks.
What is NUPL?
NUPL was created in order to determine the total amount of profits or losses from the circulating supply of a coin.
In order to determine this, each coin in circulation is weighed by the difference between the current price and the price when it last moved.
Another way to calculate this would be simply to subtract realized losses from realized profits.
Realized profits measure the total value of all coins whose current price is higher than the price at their previous movement. Realized losses do the same with coins whose current price is lower than that at their previous movement.
The difference between these two is the NUPL.
As for its calculation, the numbers are simpler:
- Values above zero indicate a position of net profit.
- Values below zero indicate a position of net loss.
Historically, values below -0.25 have signified “capitulation” while values above 0.75 have signified “euphoria,” indicating that a top is likely near.
Thresholds are also drawn above the 0.25 level, indicating “optimism,” and above the 0.5 level, indicating “belief.”
The highest ever NUPL values have been reached during the 2011, 2013, and 2017 market tops.
The 2011 top had a value of 0.878 — the highest in recorded history.
The first 2013 top had a value of 0.824, while the second peak saw a value of 0.838. Finally, the 2017 top had a value of 0.793.
Besides the all-time chart presented above, it’s interesting to take a look at the movement since Oct. 21, 2020. This is the first time in the current bull run that the NUPL value crossed above 0.5, indicating “Belief.”
It’s interesting to note that the highest NUPL value, 0.74, was reached on Feb. 21, 2021. This coincided with BTC reaching a then-high of $57,423.
Despite the BTC price currently being at an all-time high, the NUPL value is 0.71, indicating that there is still likely room for growth.
Therefore, if BTC were to reach a top at the current value, it would be the lowest NUPL value ever recorded during a top.
Historically, the NUPL has also been proficient in determining tops for ETH.
The 2016 top had a value of 0.872, the 2017 peak had a value of 0.96, and in 2018 it reached a new high of 0.912.
Looking at the movement since November 2020, the highest value reached was 0.734, when ETH was trading at $1,953. Despite ETH being at a new all-time high, the current NUPL value for ETH is 0.718.
Therefore, when considering that the previous tops were reached near 0.90, it seems that there is also ample room for growth in ETH.
While the market is definitely overheated, it has not yet reached NUPL values that were seen in previous market tops. Therefore, it’s likely that there is still room for growth, especially in ETH.
For BeInCrypto’s latest bitcoin (BTC) analysis, click here.