Bitcoin Relative Unrealized Profit / Loss is a specialized indicator on cryptocurrency. It helps investors identify when to take profits and when to re-enter the market.
In this way, Bitcoin Relative Unrealized Profit / Loss takes into account the real value in Fiat (USD) for which a Bitcoin is in profit / loss.
How do you get Bitcoin Relative Unrealized Profit / Loss?
This indicator is derived from the market value and the realized value. Therefore, it is necessary to know the meaning of each of these two terms.
Market value: It is the current price of Bitcoin multiplied by the number of coins in circulation. This is what we normally know as market capitalization or capital market. In traditional markets, it is the share price multiplied by the number of shares.
Realized value– Take the price of each Bitcoin when it was last moved. This is like a snapshot of the instant Bitcoin price when it was last moved from one wallet to another.
Subsequently, all these individual prices are added together and an average price is determined.
Then multiply that average price by the total number of coins in circulation.
If we subtract the realized value from the market value, we get the unrealized gain / loss.
In this way, with Bitcoin Unrealized Profit / Loss, we can estimate the total profit / loss in Bitcoin.
Likewise, if we divide the unrealized gains / losses by market capitalization, we can identify how it changes relatively over time.
Mathematically speaking, the unrealized gain (UP) and the unrealized loss (UL) are defined as:
This creates an unrealized relative gain / loss, which is very useful for tracking investor sentiment over time for Bitcoin. And it can be seen as follows.
Making a relationship between both metrics we obtain Bitcoin Relative Unrealized Profit / Loss. And it can be seen in the following graph superimposed on the price of Bitcoin.
What does this metric tell us?
Bitcoin Relative Unrealized Profit / Loss reflects how much of Bitcoin’s current supply has gains or losses at a given point. So it can be interpreted as an indicator of investor sentiment.
It has as a key principle, the relationship between market capitalization and investors who make profits with Bitcoin.
Thus, when market capitalization increases much faster than profit taking, we see that the market is overheating.
In these areas indicated by the red stripe, it is when they have been historically favorable to obtain profits for investors.
Especially for those who have taken a position within the area indicated in green and exit the market in the area of the red stripe.
At current prices and with market activity, Relative Unrealized Profit / Loss of Bitcoin is swinging in the white band.