On-Chain data reveals that 75% of the total circulating Bitcoin supply is currently generating profits, which could lead to a decline in the asset’s value.
The number of Bitcoin in profit has seen an increase recently, posing a potential risk of profit-taking by investors. The “profit supply” is an indicator that measures the total amount of circulating Bitcoin that currently has unrealized gains.
The metric works by analyzing the on-chain history of each individual coin in circulation to determine the price at which it was last moved/transferred. If the previous price for any coin was lower than the current spot price of the asset, that particular coin is said to have a profit, and the indicator adds it to its value.
The “loss supply” is the counter indicator to the profit supply, tracking coins of the opposite type (i.e., coins with a higher purchase price than the last spot price).
When the value of the profit supply increases, it signifies that more investors are making profits. Generally, the more profit an investor makes, the more likely they are to sell. So, if a significant portion of the supply carries certain gains, it may lead to a widespread sell-off in the industry.
Below is a chart depicting the trend of the 7-day Bitcoin profit supply in a simple moving average (SMA) over the history of the cryptocurrency:[Insert chart image]
As shown in the above graph, there has been a significant increase in the 7-day SMA value of the metric recently. This surge in the indicator occurred as the price of the cryptocurrency approached the $31,000 mark, delivering significant gains to a large number of investors.
At the current values of the indicator, coins representing around 75% of the total circulating supply of the cryptocurrency carry some amount of unrealized profit.
This would naturally imply that many investors are contemplating cashing in a portion of their accumulated gains. If holders were to actually sell here, it could result in a temporary drop in the asset’s price.
From the chart, it can be observed that the current level of the indicator is approximately where the asset reached a local high in April of this year and also encountered resistance at the beginning of 2022.
It remains to be seen whether the market can overcome this psychological barrier and allow for further continuation of the Bitcoin rally.
As of the time of writing this article, Bitcoin is trading around $31,000, representing a 1% increase over the past week.[Insert Bitcoin price chart]
BTC has witnessed some upward movement in the past day.
It is important to note that the cryptocurrency market is highly volatile, and prices can change rapidly. Investors should exercise caution and conduct thorough research before making any investment decisions.