As Bitcoin (BTC) continues to fluctuate in value, a key metric is emerging as a warning sign for traders and hodlers: the proportion of Bitcoin supply in profit. Onchain analytics platform CryptoQuant has issued a stark warning for investors: A critical point realized profits could signal the end of the current bull market, akin to sellers selling aggressively when realized profits reach a critical level.
In a December 13, 2018, blog post on its Quicktake blog, CryptoQuant said that the profitability of Bitcoin supply is a key signal to watch for a potential impending downturn. However, analysis was conducted on the percentage of Bitcoin supply ‘in loss, ’ an indicator deemed to be indicative of the sentiment of the market as well as the trend of the price within Bitcoin.
When Bitcoin bull markets end, CryptoQuant points out that it is on a sell signal when effectively all of the supply profitability is evaporated and when the percentage of Bitcoin supply in loss falls below 4%. This was especially noteworthy in late 2021, during the bull market period, when we hit a peak percentage of supplying in profit, a signal for the place to be.
Onchain Edge, the CryptoQuant contributor behind the analysis, explained the significance of this threshold: “The time to start dollar cost averaging (DCA) aggressively out of BTC is when the BTC supply loss percentage falls under 4%.” Dollar-cost averaging is an investment method in which you purchase an asset at set intervals for a set amount to minimize the risk of market volatility.
According to Onchain Edge, the bull run peaks at the 4% mark when most Bitcoin holders are in profit. Historically, this condition has represented the most profitable phase to sell and get rid of exposure before the market turns bearish.
Bitcoin Supply In Loss Key Indicator Still Above 8%
At the time of this writing, December 12, Bitcoin’s supply loss stood at close to 8%, comfortably above the disastrous 4% mark. This means they are not yet at the point where they should be very aggressive on the selling front, but the trends must be examined.
According to Onchain Edge, in previous bull markets, the percent of supply in loss has also gradually reduced as more holders moved into profitable positions. The bull run ends at that level; however, when the figure dips below 4%, the market reverses and finds its way back in.
Bitcoin Whale Profits Minimal Concern For Now
CryptoQuant’s analysis still looked at the profitability of Bitcoin supply and how much profit was being made by large investors, or Bitcoin whales, who control large blocks. The profits of these large holders are currently quite small, and many of the whales have yet to make large profits off of their positions.
CryptoQuant’s Darkfost offered an encouraging message for the market, noting it is far from being concerning that the unrealized profit ratio among whales is far from concerning. Darkfost said the current market looks nothing like March when Bitcoin’s unrealized profit ratio almost hit 2, with whales taking profits on what was otherwise a bull run. He suggested the current situation does not yet imply an imminent price correction.
Bitcoin’s price has recently experienced volatility, but market participants are seeking some target prices. Specifically, these two numbers, $110,000 and $120,000, are interpreted as very important upside targets. If Bitcoin reaches these levels, short-term holders (STHs) will respond.
CryptoQuant points out that there is usually a correlation between the behavior of short-term holders and speculative markets, so if these important price levels are broken, one can think we have right before a market shift.
“With the unrealized profit ratio currently around 1.2 and Bitcoin priced near 100k, this indicates that there may still be room for the bullish trend to continue in the mid-term.”
As Bitcoin’s price and profitability metrics continue to fluctuate, the advice to look at the 4% supply in loss threshold is becoming more important. The cryptocurrency market is unpredictable; therefore, key indicators that are key to traders and investors should watch out for. Knowing when to sell when these metrics are hit will allow Bitcoin holders to save their profits and avoid the downside of a bear market.
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