CryptoQuant’s Bitcoin on-chain PnL index recently surged above its 365-day MA, a crossover that has historically signaled early bull markets.
Bitcoin On-Chain PnL Index has formed a bullish crossover
According to data from the on-chain analytics company CryptoQuant, the index is currently signaling a buy signal for BTC. The “CryptoQuant on-chain PnL Index” is a unit of measurement that combines three different indicators into one to indicate tops, bottoms, and cyclical shifts in Bitcoin’s price.
The first of the metrics that the PnL index uses is the “MVRV ratio“This is a model that checks whether BTC is currently overvalued or undervalued by comparing the crypto’s market cap to a fair value model called the “realized cap.”
The second relevant indicator here is the “NUPL”, which tells us whether the Bitcoin market as a whole is currently posting an unrealized gain or an unrealized loss. This statistic can provide hints as to whether there is a buy or sell motive among investors right now.
Finally, there is the Spent Output Profit Ratio (SOPR), which tracks whether the average holder is currently selling at a loss or profit. The SOPR should not be confused with the NUPL, as the amount measured by the NUPL is “unrealized” profit/loss, which is the profit or loss that investors have accrued but have yet to reap (or “realise”) ) as they still need to sell their coins.
There are actually two SOPR metrics of interest here; the version specific to short-term holders (STHs) and that for long-term holders (LTHs). The entire Bitcoin market can be divided into these two groups, with the criterion that holders who bought in the last 155 days fall into the first cohort, while those who bought before fall into the latter.
Now, here is the data for the CryptoQuant on-chain PnL index, which combines all these different Bitcoin indicators into one model for the crypto:
Looks like the value of the metric has shot up | Source: CryptoQuant
As shown in the chart above, the CryptoQuant on-chain PnL index has recently risen sharply from its historic bottom zone. The chart also includes the curve for the statistic’s 365-day moving average (MA), and it’s clear that the index has crossed this MA with its latest gain.
Historically, such a crossover during bearish periods has signaled a transition to an early bull market. If this pattern holds true this time around, the current breakout could be good news for the ongoing rally.
In 2015, however, a first breakthrough like the current one failed and a successful transition only took place later. Nevertheless, CryptoQuant notes “while it is still possible for the index to pull back, the CryptoQuant 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 image of Hans Eiskonen on Unsplash.com, charts from TradingView.com, CryptoQuant.com
