An analyst has revealed a simple strategy for buying and selling Bitcoin using the historical pattern, followed by two BTC on-chain indicators.
These Bitcoin On-Chain indicators have historically followed a specific pattern
In a after on X, CryptoQuant author Axel Adler Jr. discussed a simple strategy for timing buying and selling moves for Bitcoin. The strategy is based on the trend historically visible in two BTC on-chain metrics: the net unrealized loss (ZERO) and the net unrealized gain (NUP).
As their name suggests, these indicators track the total amount of unrealized losses and unrealized gains that the investors are currently bearing.
These metrics work by going through the transaction history of each coin in circulation to see what price it last traded at. Assuming that the last transfer of each coin was the last time it changed hands, the price at that time would act as the current cost basis.
If the previous price for a coin was lower than the current spot price of the cryptocurrency, then that coin is currently making a profit. The NUP subtracts these two to calculate the exact unrealized gain for the coin.
Likewise, the ZERO does the same for coins whose cost basis is higher than the last value of the asset. These indicators then add this value for the entire supply and divide the sum by the current market capitalization.
First, here is a chart shared by NUL’s analyst, which reveals a pattern the metric has followed throughout Bitcoin’s history:
The value of the metric seems to have been heading down in recent days | Source: @AxelAdlerJr on X
Bitcoin ZERO historically appears to have broken above the 0.5 level when the asset’s price was around the bear market lows. According to Axel, the indicator in this area would be the time to buy more.
Of late, the metric has been hovering around zero, which means some unrealized loss has been incurred by the investors. This makes sense as the cryptocurrency has hit new all-time highs (ATHs). Naturally, 100% of the supply goes to profit when an ATH is set.
Similar to the pattern in the ZERO, the NUP has historically been above the 0.7 level during major tops, suggesting that it could be a good selling opportunity when the indicator is in this zone.
Looks like the value of the indicator has been climbing up recently | Source: @AxelAdlerJr on X
As visible in the chart, NUP has risen with the recent rally in Bitcoin. Still, the indicator has not risen above the seemingly important level of 0.7 so far, implying that the market may not yet be in an overheated place where selling would be ideal, at least according to this strategy.
However, the charts of the two indicators show that neither marked the exact tops or bottoms in the asset. It’s especially prominent in the NUP data, where the measure indicated “selling” at tops that were only halfway through the bull run.
That said, buying during the ZERO marked points and then selling at the overheated NUP values would historically have been profitable. In that sense, this would indeed be a “simple” strategy for the asset.
However, it remains to be seen whether these patterns will persist in the current Bitcoin cycle.
BTC price
At the time of writing, Bitcoin is trading around $69,400, down 2% in the past 24 hours.
The price of the asset appears to have been moving sideways recently | Source: BTCUSD on TradingView
Featured image of Kanchanara on Unsplash.com, CryptoQuant.com, chart from TradingView.com
Disclaimer: The article is for educational purposes only. It does not represent NewsBTC’s views on buying, selling or holding investments and of course investing involves risks. You are advised to conduct your own research before making any investment decisions. Use the information on this website entirely at your own risk.