CryptoQuant’s Bitcoin chain PnL index has risen above its 365-day MA recently, a crossover that has signaled an early bull market.
Bitcoin On-Chain PnL Index Has Made a Bullish Crossover
According to data from on-chain analytics company CryptoQuant, the index is showing a buy signal for BTC today. “CryptoQuant on-chain PnL index” is a metric that combines three different indicators into one to indicate peaks, troughs, and cyclical changes in the price of Bitcoin.
The first metric used by the PnL index is the “MVRV ratio,” which is a model that checks whether BTC is currently overvalued or undervalued by comparing the crypto market cap to a fair value model called “realization cap.”
The second relevant indicator here is “NUPL,” which tells you whether the Bitcoin market as a whole is currently carrying unrealized gains or unrealized losses. This metric can provide clues as to whether there is a buying or selling motive among investors today.
Finally, there is the Spent Output Profit Ratio (SOPR), which tracks whether the average owner is selling at a loss or profit today. SOPR should not be confused with NUPL, because the amount measured by NUPL is the “unrealized” profit/loss, that is, the profit or loss accumulated by the investor but has not yet been harvested (or “realized”) as they still have to sell their coins.
There are actually two SOPR metrics of interest here; special versions for short-term holders (STH) and long-term holders (LTH). The Bitcoin market as a whole can be divided into these two groups, with the criteria of those who bought at the end of 155 days falling into the former cohort, while those who bought before fell into the latter.
Now, here’s the data for CryptoQuant’s on-chain PnL index, which takes all the different Bitcoin indicators and combines them into one model for crypto:
Looks like the value of the metric has shot up | Source: CryptoQuant
As shown in the chart above, CryptoQuant’s on-chain PnL index has risen sharply from the historical low zone. The chart also includes a metric 365-day moving average (MA) curve, and it is clear that the index has crossed this MA with the latest surge.
Historically, such crossovers during bearish periods have signaled the transition to an early bull market. If this pattern holds true this time too, then today’s breakout could be good news for the rally.
However, back in 2015, the initial breakout like now has completely failed, and only later a successful transition took place. However, CryptoQuant notes that “although the index may still fall further, CryptoQuant’s PnL Index has issued a definitive buy signal for BTC.”
BTC price
At the time of writing, Bitcoin is trading around $22,900, up 11% over the past week.
BTC seems to be showing stale price action | Source: BTCUSD on TradingView
Featured images from Hans Eiskonen on Unsplash.com, charts from TradingView.com, CryptoQuant.com