According to on-chain data, the percentage of Bitcoin supply in profit has reached a high of 95% during the recent rally, which could indicate a potential top for the asset.
Bitcoin Supply In Profit Reaches High Levels
In a recent post on X, analyst James Van Straten explains that the Bitcoin Percent Supply in Profit is approaching a level that has historically signaled a top for the coin.
The “Percent Supply in Profit” is an on-chain indicator that tracks the total percentage of Bitcoin supply that is currently holding unrealized gains.
This metric works by analyzing the blockchain history of each coin in circulation to determine the last price at which it was transacted. If this last transaction involved a change of ownership, then that price becomes the coin’s current cost basis.
If the last transfer price for a coin is lower than its current spot price, then that coin is considered to be in profit. The Percent Supply in Profit adds up all such coins and calculates the percentage of the total supply they make up.
The counterpart to this indicator is the “Percent Supply in Loss,” which tracks the coins that are currently holding unrealized losses. As the total supply must add up to 100%, the Percent Supply in Loss is simply the difference between 100 and the Percent Supply in Profit.
Here is a chart showing the trend of the Bitcoin Percent Supply in Profit over the past few years:
The value of this metric has sharply increased in recent days | Source: @jvs_btc on X
As shown in the chart, the Bitcoin Percent Supply In Profit has significantly risen during the recent bullish push of BTC. The coin had previously reached a high of $49,000 before retracing to its current price levels.
The analyst has marked two regions on the chart that have historically been relevant for the cryptocurrency. In the red zone, where the value is above 95%, the asset has typically encountered tops.
This pattern is due to the fact that profitable investors are more likely to sell their coins. As more holders make gains, the likelihood of a mass selloff increases.
Therefore, it is not surprising that the coin has often formed tops when a large portion of the supply is in profit. The opposite is true for the region below 50%, where the coin has typically reached bottoms.
At these levels, the majority of the supply is holding unrealized losses, so there are fewer profit sellers in the market. This decrease in selling pressure can help the coin reach a turning point.
The chart shows that the current Percent Supply In Profit levels are not far from the 95% cutoff for the top region. With these high levels, the coin may be on the verge of reaching a local top, if it has not already.
BTC Price
Since the initial surge, Bitcoin has cooled off and retraced to around $47,900.
The price of the coin has recently experienced a sharp increase | Source: BTCUSD on TradingView
Featured image from iStock.com, charts from TradingView.com, Glassnode.com
When Bitcoin first emerged in 2009, it was hailed as the future of digital currency. Over the years, it has experienced significant price fluctuations, reaching a peak of nearly $65,000 in April 2021 before dropping to around $30,000 in July. Despite these ups and downs, there has been a recent surge in Bitcoin’s supply, and many are questioning whether this is a game-changing signal for the cryptocurrency. In this article, we will delve into the significance of this supply increase, what it means for Bitcoin, and how it can potentially affect investors.
What is Bitcoin’s Supply Surge?
Before delving into the recent supply surge, let’s first understand what Bitcoin’s supply refers to. Bitcoin’s supply is the amount of the cryptocurrency that is currently in circulation. Unlike traditional currencies, which are regulated by central banks, Bitcoin’s supply is controlled by its underlying technology, the blockchain. The blockchain is a decentralized ledger that records all Bitcoin transactions, making it a transparent and secure system.
Since its inception, Bitcoin’s supply has been capped at 21 million coins. This means that there can never be more than 21 million Bitcoins in existence. Currently, there are over 18.7 million Bitcoins in circulation, leaving only 2.3 million left to be mined.
So, what is the recent supply surge that has garnered widespread attention? In May 2021, there was a significant increase in the number of Bitcoins being mined. This surge in supply can be attributed to two main factors – the halving event and the rise of mining activities.
The Halving Event
One of the most unique features of Bitcoin is its halving event, which occurs every four years. During this event, the rate at which new Bitcoins are created is halved, reducing the supply of new coins into circulation. This event is designed to control inflation and ensure that the supply of Bitcoin remains limited, making the cryptocurrency more valuable.
The most recent halving event in May 2020 saw the mining reward reduced from 12.5 Bitcoins per block to 6.25 Bitcoins per block. This reduction in supply led to an increase in the mining activity, resulting in the recent surge in Bitcoin’s supply.
Rise of Mining Activities
Mining is the process by which new Bitcoins are created and added to the blockchain. In the early days of Bitcoin, mining could be done on a regular computer, but as the cryptocurrency gained popularity, the mining process became more complex and energy-intensive. Today, mining requires specialized hardware and high computing power, resulting in an increase in mining activities around the world.
The surge in mining activities is directly linked to the increase in Bitcoin’s supply. As more miners join the network, the competition for new Bitcoins intensifies, leading to higher supply production.
What Does This Supply Surge Mean for Bitcoin?
The increase in Bitcoin’s supply may seem like a cause for concern at first glance. However, there are several reasons why this surge should be seen as a positive development for the cryptocurrency.
1. Increased Adoption
The surge in Bitcoin’s supply can be seen as a reflection of the growing adoption of the cryptocurrency. As the mining reward decreases, more miners join the network, increasing the supply. This, in turn, indicates that more people are investing in Bitcoin and using it as a store of value.
2. Decreased Volatility
Bitcoin’s supply surge can also have a positive impact on its volatility. The cryptocurrency’s price volatility has been a concern for many potential investors, but as the supply becomes more distributed, the market may stabilize, making Bitcoin a more attractive investment option.
3. Greater Liquidity
The increasing supply also means that there is more liquidity in the Bitcoin market. Liquidity refers to how easily an asset can be bought or sold without significantly affecting its price. As more Bitcoins enter the market, it becomes easier to buy and sell the cryptocurrency, making it more accessible to investors.
4. Positive for Miners
The recent supply surge is also good news for Bitcoin miners. As the mining reward decreases, the value of each Bitcoin mined increases, making mining more profitable. This can incentivize more miners to join the network, increasing the security and decentralization of the blockchain.
5. Long-term Potential
The recent supply surge may have short-term effects, but in the long run, it can have a significant impact on the value of Bitcoin. As the supply of new coins decreases, the cryptocurrency’s supply will become even more limited, potentially driving up its price in the future.
Practical Tips for Investors
For investors, the recent supply surge in Bitcoin is a signal that should not be ignored. Here are a few tips to keep in mind when considering Bitcoin as an investment option:
1. Diversify Your Portfolio
As with any investment, it is crucial to keep a diversified portfolio to minimize risk. While the recent supply surge in Bitcoin may be promising, it is always wise to spread your investments across different assets.
2. Stay Informed
Stay updated on the latest developments and news in the world of Bitcoin and other cryptocurrencies. This will help you make informed decisions when it comes to buying, selling, or holding your investments.
3. Consider Dollar-Cost Averaging
Instead of investing a lump sum amount into Bitcoin, consider using a dollar-cost averaging strategy, which involves investing a fixed amount regularly over time. This can help manage the risk of volatility and potentially yield greater returns.
Conclusion
The recent supply surge in Bitcoin has raised numerous questions and generated a lot of speculation. However, when we look beyond the surface, it is evident that this surge is a positive development that indicates the growing adoption and potential of the cryptocurrency. As with any investment, it comes with risks, but for those who are willing to do their due diligence and stay informed, Bitcoin can be a promising addition to their investment portfolio.
