CryptoQuant’s Bitcoin on-chain PnL index has surged above its 365-day MA recently, a crossover that has historically signaled early bull markets.
Bitcoin On-Chain PnL Index Has Formed A Bullish Crossover
As per data from the on-chain analytics firm CryptoQuant, the index is indicating a buy signal for BTC right now. The “CryptoQuant on-chain PnL index” is a metric that combines three different indicators into one to point out tops, bottoms, and cyclical shifts in the price of Bitcoin.
The first of the metrics that the PnL index uses is the “MVRV ratio,” which is a model that checks whether BTC is currently overvalued or undervalued by comparing the crypto’s market cap with 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 carrying an unrealized profit or an unrealized loss. This metric can provide hints about whether there is a buying or selling motive among investors right now.
Finally, there is the Spent Output Profit Ratio (SOPR), which tracks whether the average holder is selling at a loss or a profit at the moment. The SOPR shouldn’t be confused with the NUPL, as the quantity being measured by the NUPL is the “unrealized” profit/loss, which is the profit or loss that investors have accumulated but are yet to harvest (or “realize”) as they are still to sell their coins.
There are actually two SOPR metrics of interest here; the version specifically for the short-term holders (STHs) and that for the long-term holders (LTHs). The entire Bitcoin market can be divided into these two groups, with the criteria being that holders who bought within the last 155 days fall into the former cohort, while those who bought before that fall into the latter.
Now, here is the data for the CryptoQuant on-chain PnL index, which takes all these different Bitcoin indicators and combines them into one model for the crypto:
As displayed in the above graph, the CryptoQuant on-chain PnL index has sharply risen out of the historical bottom zone recently. The chart also includes the curve for the 365-day moving average (MA) of the metric, and it’s clear that the index has crossed above this MA with the latest surge.
Historically, such a crossover during bearish periods has signaled a transition toward an early bull market. If this pattern holds true this time as well, then the current breakout could be good news for the ongoing rally.
However, back in 2015, an initial breakout like the current one did end up failing, and it was only later that a successful transition took place. Nonetheless, CryptoQuant notes “although it is still possible for the index to fall back below, the CryptoQuant PnL Index has issued a definitive buy signal for BTC.”
At the time of writing, Bitcoin is trading around $22,900, up 11% in the last week.
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