More Indicators For Your Bitcoin

On-Chain Data

In our recent posts, we highlighted that the open interest in the derivatives market and the global M2 money supply are key indicators for determining the probability and direction of price movement in bitcoin.

The following two indicators are based on on-chain data.

One of the advantages of Bitcoin is that transactions are viewable, enabling the real-time visualisation of the flow of money between wallets and exchanges.

Bitcoin Daily Active Addresses

The first indicator is the number of daily active addresses, which can be viewed on Bitcoin Magazine Pro.

Daily active addresses refer to the number of unique wallet addresses that have been active over a specified period, which can be the activity of an individual user or a collective.

The indicator provides insight into the transactions and adoption of BTC in the last 24 hrs. In effect, it shows real-time demand for bitcoin.

Historically, there has been a correlation between the number of active addresses and the movement in the Bitcoin price. If there is more demand for BTC and the indicator is growing, that may point toward further price growth and vice versa.

However, if the price of BTC is rising but the number of daily active addresses stays flat, that could be a sign that prices are being manipulated. The price rise will not be sustainable, and a price reversal will likely follow.

If the price of BTC is falling but the daily active addresses are rising, then that is a bullish signal and could be a buy-the-dip opportunity.

Percent Of Addresses In Profit

The second indicator is the percent of addresses in profit, which can also be viewed on Bitcoin Magazine Pro and shows the percentage of the total bitcoin supply with unrealised profits.

This is important because when the percentage is high, and investors see gains on their BTC purchases, there is an increasing probability that profit-taking will occur or the market is overvalued.

The chart should be reviewed alongside the chart of net unrealised profit/loss (NUPL), which shows the ratio between the market cap and Bitcoin investors taking profit.

A NUPL above 75% signals that there is substantial profit in bitcoin holdings, and that sentiment is in FOMO territory. That likely points to an overvalued market.

If the NUPL drops below 0%, then the average BTC holder is now at a loss, and sentiment is low. Capitulation and a price bottom will likely follow, with the potential for a buy-the-dip opportunity.

Knowing how many investors are in profit helps to avoid emotional trading. It’s easy to get caught up in FOMO when the charts are full of green candles.

If a significant percentage of Bitcoin holders are in profit, then proceed with caution. It could be a signal that the rally won’t last and that entering the market will leave you holding the bag.