On-chain data shows that Bitcoin is not currently meeting the conditions that have historically accompanied major price bottoms.
Bitcoin supply gains still outweigh supply losses
Research and data analyst James V. Straten pointed out in a new post on X that BTC has not met the bottom condition of supply in the profit and loss indicator.
The "profit supply" here naturally refers to the total supply of Bitcoin that has not realized profits. Similarly, the "loss supply" records the number of underwater coins.
These indicators work by looking at the on-chain history of each token in circulation to see the price at which it last moved. If the previous price of any token is lower than the current BTC spot price, then that particular token is profitable and the supply in profit increases its value. On the other hand, tokens with a higher cost basis are booked as losses by supply.
Now, the chart below shows how these two Bitcoin metrics have trended throughout the cryptocurrency’s history:
In the chart, the analyst highlighted the specific patterns that these two indicators have shown during historical bottoms in cryptocurrency prices. During these lows, the profit supply appears to be lower than the loss supply, which means that most of the market enters a loss-making state.
Generally speaking, investors who are taking profits are more likely to sell, so as long as the supply of profits is very high, the more likely Bitcoin is to top. Likewise, a large number of investors should not suffer losses, which should mean that there won't be many sellers left.
This is probably why bottoms are formed historically when loss supply exceeds profit supply. The chart shows that the current profit supply of Bitcoin is quite different from the loss supply, which indicates that a considerable amount of Bitcoin is still profitable.
To be more precise, there is currently a gap of six million coins between the two supplies. The current market is far from reaching the historical bottom standard.
However, the bottom that the pattern usually corresponds to is the cyclical low observed during the worst phase of the bear market. In the current cycle, this bottom was marked after the FTX crash in November 2022.
The only exception to this rule was in March 2020, when Bitcoin crashed in response to the outbreak of the COVID-19 virus. This crash was an unexpected event, which may explain why it does not match other bottoms.
Since the market at this stage is likely past the bear market bottom, the supply in the profit and loss pattern should not have much impact on whether BTC finds a bottom after the recent crash.
If the November 2022 low is not the true bear market bottom, BTC could face more pain as market profitability would need to fluctuate significantly before finding a true bottom.
Bitcoin Price
At the time of writing, Bitcoin is trading around $26,300, down 7% over the past seven days.
