An analyst has revealed a simple strategy for buying and selling Bitcoin using the historical pattern followed by two on-chain BTC indicators.
These on-chain Bitcoin indicators have historically followed a specific pattern
In a job On X, CryptoQuant author Axel Adler Jr. discussed a simple strategy for timing Bitcoin buy and sell moves. The strategy is based on the trend observed historically in two BTC on-chain metrics: net unrealized loss (NUL) and net unrealized profit (NUP).
As their name suggests, these indicators track the total amount of unrealized losses and unrealized profits that investors are currently making.
These metrics work by looking through the transaction history of each coin in circulation to see what price it last traded at. Assuming that the last transfer of each coin corresponds to the last change of hands, the price at that time would serve as the current cost basis.
If a coin's previous price was lower than the cryptocurrency's current spot price, then that coin is currently generating a profit. The NUP subtracts the two to calculate the exact unrealized gain of the coin.
Likewise, NUL does the same for coins whose base cost is greater than the last value of the asset. These indicators then summarize this value for the entire supply and divide the sum by the current market capitalization.
First, here's a chart shared by the NUL analyst that reveals a pattern the metric has followed throughout Bitcoin's history:
The value of the metric seems to have been heading down in recent days | Source: @AxelAdlerJr on X
Bitcoin NUL appears to have historically risen above the 0.5 level when the asset's price has been trading around bear market lows. According to Axel, the indicator in this territory would be the time to buy more.
Recently, the measure has hovered around the zero mark, meaning investors have suffered unrealized losses. This makes sense as the cryptocurrency has set new all-time highs (ATH). Naturally, 100% of the supply goes towards profit when an ATH is set.
Similar to the NUL trend, NUP has been above the 0.7 level during major highs in the past, suggesting that it could be a good opportunity to sell when the indicator is found in this area.
Looks like the value of the indicator has been climbing up recently | Source: @AxelAdlerJr on X
As the chart shows, NUP has been moving higher with the recent Bitcoin rally. Still, so far the indicator has not risen above the seemingly important 0.7 level, implying that the market may not yet be in an overheated zone where selling would be ideal, from less according to this strategy.
However, charts for both indicators show that neither of them reported the exact highs or lows of the asset. This is particularly visible in the NUP data, where the measure signaled a “sell” during highs that were only halfway through the bull run.
That said, buying during the NUL signaled points and then selling at the overheated NUP values would have been historically profitable. In this sense, it would indeed be a “simple” strategy for the asset.
However, it remains to be seen whether these trends will also continue in the current Bitcoin cycle.
BTC Price
At the time of writing, Bitcoin is trading at around $69,400, down 2% in the last 24 hours.
The price of the asset appears to have been moving sideways recently | Source: BTCUSD on TradingView
Featured image of Kanchanara on Unsplash.com, CryptoQuant.com, chart from TradingView.com
Disclaimer: The article is provided for educational purposes only. It does not represent the views of NewsBTC on whether to buy, sell or hold investments and, naturally, investing involves risks. You are advised to carry out your own research before making any investment decision. Use the information provided on this website entirely at your own risk.