As the price of Bitcoin increases, more and more on-chain signals point to an overheating cryptocurrency market. These signals are proving to be particularly relevant in the context of Bitcoin’s impending halving.
BeInCrypto presents 4 on-chain signals that indicate the possibility of an impending correction. This is especially relevant from the point of view of the current price action, which shows numerous similarities to the 2019 fractal.
Back then, the BTC price also experienced a strong uptrend, only to see a deep correction a few months before halving. Does the on-chain data support these predictions? Will the halving period be correlated with declines in the Bitcoin price?
On-Chain Signals: NUPL Enters the Belief Region
In addition to the numerous technical similarities between the current Bitcoin market situation and the 2019 fractal, on-chain analysis also points out parallels. The first two on-chain signals concern the famous Net Unrealized Profit/Loss (NUPL) indicator.
NUPL is the difference between relative unrealized profit and relative unrealized loss. This ratio can also be calculated by subtracting the realized capitalization from the market capitalization and dividing the result by the market capitalization. Moreover, NUPL comes in several variations: for all market investors, for long-term holders (LTH), and for short-term holders (STH).
In the chart of the basic index version, we see that in December 2023 and January 2024, NUPL is in the green belief area. During a mature bull market, this area signals a healthy market in a strong uptrend.
However, historically, the first entry into this area after recording a macro bottom in previous cycles (red circles) indicates an impending correction. Indeed, declines followed fairly quickly after the area of belief was first reached (blue circles). Then, the NUPL would return back to the yellow area of optimism.
However, in 2019 and early 2020, NUPL dropped again to lows in the orange (hope) and even red (capitulation) areas. If history were to rhyme, then also now – after a short-term presence in the green area – the coming correction on the NUPL chart could suggest a decline in the Bitcoin price.
It is worth adding that an analogous situation is seen on the NUPL chart for long-term hodlers (LTH). This category includes addresses that hold their assets for at least 155 days. The first short visit to the green area after the macro lows also resulted in a correction.
Realized Profits Reminiscent of 2019 Breakout
The on-chain signals we analyze are also considered an indicators correlated with NUPL, but instead of unrealized profit/loss, it shows those that are realized. Net realized profit/loss is the net profit or loss of all transferred coins and is defined as the difference between realized profit and realized loss.
The higher the graph reaches the green area, the greater the realized profits recorded by Bitcoin market participants. Conversely, many investors sell BTC when the red bars are long, realizing a loss.
We are seeing a big breakout on the chart of the net realized profit/loss indicator. It follows a long-term uptrend and resembles the situation of 2019 (blue circles). In the previous cycle, this led to a 53% correction, which was later exacerbated by the COVID-19 crash (red arrow).
If a similar scenario were to materialize, Bitcoin price could return to the $23,000 – $28,000 range before resuming the uptrend. This is even more likely since, as in 2019, the breakout comes a few months before Bitcoin’s halving.
On-Chain Signals: Percentage of UTXO in Profit Enters Oversold Area
The last on-chain signal that suggests the possibility of an imminent BTC price correction is UTXO’s percentage in profit. This is simply the percentage of unspent transaction outputs (UTXOs) whose price was lower than the current price at the time of creation. In other words, this indicator shows what percentage of BTC addresses are currently in profit.
The long-term chart shows that the level above 95% is marked in red. Here again – in a strong uptrend – almost all UTXOs are in profit. Moreover, as Bitcoin records an all-time high (ATH), 100% of UTXOs are in profit.
On the other hand, in 2019, after bouncing off the macro lows of the previous cycle, the situation on this chart is similar to the signals from the NUPL chart. The timing before Bitcoin’s next halving is also similar. We see a short-term visit to the red oversold area, followed by a correction.
If the scenario repeats, the first quarter of 2024 could be a period of decline in the cryptocurrency market. This is especially possible with the pre-halving hype and euphoria following the approval of the spot Bitcoin ETF.
For BeInCrypto’s latest crypto market analysis, click here.