As the price of Bitcoin rises, more and more on-chain signals point to an overheating cryptocurrency market. These signals have proven to be particularly important in the context of Bitcoin’s impending halving.
BeInCrypto offers 4 on-chain signals indicating the possibility of an imminent correction. This is especially important from the point of view of current price action, which shows many similarities to the 2019 fractal.
At that time, Bitcoin price also experienced a strong uptrend, only to see a deep correction a few months before the halving. Does on-chain data support these expectations? Will the halving be associated with a decline in the price of Bitcoin?
Signals on the chain: NUPL enters the belief zone
In addition to the many technical similarities between the current state of the Bitcoin market and the 2019 fractal, cross-chain analysis also points to similarities. The first two signals in the series relate to the Net Unrealized Profit/Loss (NUPL) indicator.
NUPL is the difference between relative unrealized gain and relative unrealized loss. This ratio can also be calculated by subtracting the realized market value from the market value and dividing the result by the market value. Furthermore, NUPL comes in several forms: for all market investors, for long-term holders (LTH), and for short-term holders (STH).
Read more: Bitcoin Halving Courses and Investment Strategies: What to Know
In the underlying index release chart, we see that in December 2023 and January 2024, NUPL was in the green belief zone. During a mature bull market, this area indicates a healthy market in a strong uptrend.
However, historically, the first entry into this zone after a significant bottom in previous sessions (red circles) indicates an impending correction. In fact, declines followed fairly quickly after the belief zone was first reached (blue circles). After that, NUPL will return to the yellow optimism zone.
However, in 2019 and early 2020, NUPL again fell to lows in the orange (hope) and even red (surrender) zones. If history is consistent, the upcoming correction on the NUPL chart now also – after a short-term presence in the green – may signal a decline in the price of Bitcoin.
It should be noted that a similar situation is seen on the NUPL chart for long-term traders (LTH). This category includes addresses that hold their assets for at least 155 days. The first brief visit to the green after macroeconomic lows also triggered a correction.
The profits made are reminiscent of the 2019 breakout
The on-chain signals we analyze are also indicators related to NUPL, but instead of unrealized profit/loss, they show realized ones. Net realized profit/loss is the net profit or loss of all currencies converted and is defined as the difference between the realized profit and the realized loss.
The higher the chart rises to the green zone, the more profits are recorded by Bitcoin market participants. Conversely, many investors sell Bitcoin when the red bars are long, taking a loss.
We are seeing a major breakout on the NET Realized P/E chart. It follows a long-term uptrend and is similar to the situation in 2019 (blue circles). In the previous session, this led to a 53% correction, which was later exacerbated by the coronavirus collapse (red arrow).
If a similar scenario materializes, Bitcoin price could return to the $23,000-$28,000 range before the uptrend resumes. This is more likely because, like in 2019, the hack comes a few months before the Bitcoin halving.
On-chain signals: UTXO’s payout ratio is entering the oversold zone
The last signal on the chain indicating the possibility of an imminent BTC price correction is the UTXO payout ratio. This is simply the percentage of Unspent Transaction Outputs (UTXOs) that were priced below the current price at the time of creation. In other words, this indicator shows what percentage of BTC addresses are currently generating profits.
The long-term chart shows that the level above 95% is marked in red. Here again – in a strong uptrend – almost all UTXOs are making profits. Furthermore, as Bitcoin hits an all-time high (ATH), 100% of UTXO is making profits.
On the other hand, in 2019, after rebounding from the overall lows of the previous session, the situation on this chart is similar to the signals from the NUPL chart. The timing before the next Bitcoin halving is also similar. We see a short-term visit to the red oversold zone followed by a correction.
If the scenario repeats, the first quarter of 2024 could be a period of decline in the cryptocurrency market. This is especially possible with the pre-halving hype and euphoria following the approval of the Spot Bitcoin ETF.
Read more: What is Bitcoin halving?
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