The Daily Dive #078 - Long-Term Holders And Profit Taking

Supply In Profit

As we approach bitcoin price all-time highs, we will start to see the percentage of circulating supply in profit climb up to 100%. More importantly, we will see long-term holder supply climb to higher profit ranges. Since long-term holders are driving the market with 81% of circulating supply, their profit-taking behavior is key to identifying when the market may cool down as price starts to rip up to new highs. Long-term holders realizing huge profits into previous ATHs signaled the spot market cooling down as derivatives markets took over.

Currently, 95.2% of all bitcoin supply is in profit. During bull cycle top run-ups, supply can exist over 95% in profit for several weeks before healthy drawdowns. Even after these drawdowns, the larger trend can exist for months during bull cycles.

Supply In Loss

The bitcoin supply in loss has hit a six-month low. This further shows how little stands in the way between new all-time highs; any holder that wishes to exit at breakeven cost will likely have the opportunity over the coming days/weeks ahead.

With the feverish increase in holdings by long-term holders since the middle of 2021, the percentage of supply held by said holders continues to break all-time highs.

A different (inverse) look, showing the percentage of short-term holder supply, shows the historic supply squeeze currently taking place. Historically, when short-term holder supply approaches approximately 20%, a bitcoin move upwards is in play. The proverbial spring looks to be as coiled as ever.

Long-Term Holder Behavior

When looking at the long-term holder's spent output profit ratio (simply price sold, over price paid), we can see that profits have reached over 500% in the past during bull-cycle tops and during the latest all-time high. Currently, we’re around 100% using a 30-day moving average. What this tells us is that the current price level is not high enough for long-term holders to realize bull-cycle-top profit-taking returns like they have in the past. The bitcoin price must go up much more before holders are incentivized to take profits.

That’s because the overall long-term holder cost basis has increased significantly over the last few months which we covered in Daily Dive #066. Cost basis increased as long-term holders stacked at a rate we’ve never seen before after the drawdown to $30,000. As an aside, long-term holders were much more prone to profit taking during new all-time highs rather than selling off during the March 2020 macro correction.

Another way to visualize this trend is to look at the net unrealized profit and loss ratio. NUPL (Net Unrealized Profit/Loss) specifically looks at the difference between unrealized profit and unrealized loss to determine whether the network as a whole is in a state of profit or loss.

“Any value above zero indicates that the network is in a state of net profit, while values below zero indicate a state of net loss. In general, the further NUPL deviates from zero, the closer the market trends towards tops and bottoms. As such, NUPL can help investors identify when to take profit (blue) and when to reenter (red).” You can read more on that here.

Currently, we’re below the 0.75 metric threshold where historically we see the euphoria and greed parts of the cycle with the most profits being taken at cycle tops. During the all-time high price run-up, the metric was over 0.75 for six months signalling the first top of a potential double-top bull market cycle.