Net Unrealized Profit / Loss (NUPL) is the best metric to understand the real sentiments (bull/bearish) around any financial asset market. By getting the knowledge of any asset’s NUPL we can predict the next move of the trade price of that asset.
Before knowing NUPL, first, we need to understand what is unrealised loss or profit.
Let’s take an example: we purchased Bitcoin (BTC) at the trade price of $60,000 and after some time the trade price surged to $64,000 trade price. In this situation, we will say that we have an unrealised profit of $4,000 but at the same time, we need to understand that we’re still holding our Bitcoin i.e not sold by us.
Similarly, we will say that we’re in unrealised loss if the Bitcoin trade price plunges from the $60,000 level, which was our buy price.
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Calculation of NUPL
To calculate NUPL, we have to use the following formula.
NUPL = (Market Cap − Realized Cap) / Market Cap
Let’s say we are calculating NUPL for Bitcoin then the current price of Bitcoin multiplied by the total number of Bitcoins in circulation. Now the obtained value will be equal to “Market Cap”.
To calculate “Realized Cap”, we have to sum the value of all Bitcoins at the prices they were bought.
Positive & Negative NUPL
If we will get Bitcoin’s NUPL value more than 0 then we will consider that the majority of the people who own Bitcoin could sell it now, as they’re in profit. Alternatively, we can say that a positive NUPL shows confidence in the market. But this could also lead to more selling as people cash in on their profits.
If we get Bitcoin’s NUPL value less than zero or say negative, then we will say that the market is holding an unrealized loss. That means the majority of the Bitcoin holders would incur a loss if they sold their Bitcoin holdings at the current price.
In this way, we can determine the level of market fear or pessimism by getting the knowledge of Bitcoin Net Unrealized Profit / Loss (NUPL).
So we can say that “a higher NUPL value corresponds to bullish sentiments, while a lower value indicates bearish sentiments.”
What is Bitcoin Net Unrealized Profit / Loss (NUPL Ratio)?
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