27 February 2024
On-chain data shows the Bitcoin supply in profit has reached levels that led to some tops in the past, like the peak of the April 2019 rally.
Bitcoin Supply In Profit Has Shot Up Following BTC’s Latest Run
As pointed out by an analyst in a CryptoQuant Quicktake post, Bitcoin supply in profit has hit very high levels after the asset’s latest rally. The “supply in profit” here refers to a metric that measures the percentage of the total circulating BTC supply that’s currently carrying some amount of unrealized gain.
This indicator works by going through the transaction history of each coin (more precisely, each UTXO) on the blockchain to see what price it was last moved at. Assuming that the previous transfer of the coin was the last time it changed hands, the price at that instance would act as its current cost basis.
As such, if the previous transfer price for any coin was less than the spot value of the cryptocurrency right now, then that particular coin would be holding a profit currently. The supply in profit sums up all such coins and calculates what percentage of the total supply they make up for.
A counterpart indicator called the “supply in loss” does the same for coins of the opposite type (that is, those with a cost basis lower than the current price). This metric’s value can also simply be found by subtracting the supply in profit from 100 (since the total supply must add up to 100%).
Now, here is a chart that shows the trend in the Bitcoin supply in profit over the past few years:
As displayed in the above graph, the Bitcoin supply in profit has naturally shot up recently as the asset’s price has gone through its rally. After the latest continuation of the run towards the $57,000 level, the metric has hit the 95% mark.
This means that 95% of all UTXOs in existence is carrying a profit at the moment. This may not entirely be a positive thing, however, if history is anything to go by.
As the quant has highlighted in the chart, the BTC rally that started in April 2019 topped out just as the supply in profit hit the same high levels as right now. Similarly, the local top in 2020 at the beginning of the last bull market also coincided with these levels.
The reason behind this pattern is likely to be the fact that investors in profit are more likely to sell their coins at any point. Thus, when a large percentage of holders are carrying gains, the probability of a mass selloff can spike up.
That said, in the 2017 and 2021 bull runs, as well as during the November 2021 peak, the indicator did manage to surpass these levels for a while before the top was encountered.
As such, it remains to be seen if the current rally is similar to the likes of the April 2019 run, in which case a top might be hit here, or if it’s a proper bull run, meaning that there might still be a while to go before the peak.
BTC Price
At the time of writing, Bitcoin is trading around the $56,500 level, up 8% over the past week.