HomeWorkPost-- SteemitCryptoAcademy S4W5 - OnChain Metrics-3 [@sapwood]

---

Q1. How do you calculate Relative Unrealized Profit/Loss & SOPR? Examples? How are they different from MVRV Ratio(For MVRV

---

Relative Unrealized Profit/Loss:

This is an On-chain metrics indicator that is useful for the Long term Analysis of UTXO based assets and also helps us to identify the Cycle Top & Bottom. The calculation of RUPL is simple and it can be calculated from the below formula-

---

---

Where,

Market Cap: MarketCap of any asset can be calculated by multiple The Total Supply with The current market price.

Realised Cap: Realized Market cap lets us know the actual valuation of the asset. As we all there is a number of Bitcoins lost in the last 10 years especially at the begging of its birth when the value was less than a Dollar. So calculating the Market including these lost Bitcoins is not a good idea that doesn't tell the actual valuation. The calculation of Realized Market Cap is similar to Market Cap however the main difference it takes the price of Bitcoin when it was last spent or moved. Here is the formula to calculate RMC.

---

Reliazed Market Cap= value⋅price created[USD] (of all UTXOs)

---

Example:

Let suppose in the begging the Total Supply of any asset A is 100 at the begging of 2011. Let's suppose 30 coins did not in the last 2 years, 20 Coins being spent in 2014 at the price of $25 and the rest 50 coins being spent in 2020 at the price of $40. Now Let's calculate the Realized Market Cap of the asset in 2020.

Realized Market Cap= (20 * 25)+(50 * 40)= 500+2000= $2500

Let's suppose the current price of asset A is $20 then,

MarketCap= 100 * 20= $2000

As we know the formula of RUPL= (MarketCap- RealisedCap)/MarketCap

RUPL (2000- 2500)/2000= -500/2000= -0.25 or -25%

This calculation shows the investors are at a loss and we may see the bottom in near future.

---

Spent Output Price Ratio(SOPR):

This is also an Onchain metrics indicator that helps us to find the Top & Bottom in the Short term. It can be calculated from the below formula.

image source

Example:

Let's suppose there is two UTXO x, y

If UTXO x (4 Coins) was purchased at the price of $100 and UTXO y (6) was purchased at the price of $80.
If UTXO x was sold at $120 and UTXO y sold at $200 then the calculation of SOPR would be-

Spent Value= (4 * 120)+ (6 * 200)= 480+ 1200= $1680
Created Value= (4 * 100)+ (6 * 120)= 400+ 720= $1120

SOPR= Spent Value/ Created Value
SOPR = 1680/1120= 1.50

As per this calculation, the Holders are looking for profit and we may see profit booking in near future.

Difference between MVRV ratio and RUPL & SOPR

They all are On-chain metrics data which helps Investors or Hodler's to do a long analysis of UTXO based currencies.

MVRV: In simple words, MVRV is an On-chain Metrics that uses the transparency of Blockchain to identify the Tops and Bottom of the asset. This can b very helpful for the investors to identify where to when is the right time to make the positions.

Here is the Cheat code to read MVRV Ratio-
a) If the MVRV ratio > 100% or above 1 and it is creating Higher High (HH) & Higher Lows (HL) then it will be considered as an Uptrend market.

MVRV is different because of its calculation method,

---

MVRV Ratio= MarketCap/ RealisedCap

---

RUPL: Realised Unrealised Profit/Loss is used to identify the Potential Tops and Bottoms of the Cycle and it is very useful for Long term analysis. Also, it is a leading indicator.

SOPR: Spent Output Price Ratio is used to identify the Local Tops and Bottoms of the Bull or Bear Cycle.

---

Q2. Consider the on-chain metrics-- Relative Unrealized Profit/Loss & SOPR, from any reliable source(Santiment, Glassnode, LookintoBitcoin, Coinmetrics, etc), and create a fundamental analysis model for any UTXO based crypto, e.g. BTC, LTC [create a model to identify the cycle top & bottom and/or local top & bottom] and determine the price trend/predict the market (or correlate the data with the price trend)w.r.t. the on-chain metrics?

---

Relative Unrealized Profit/Loss(RUPL):

RUPL helps us to identify the Top and bottom in the Cycle, we can divide RUPL in different phases as per the value of RUPl.

• RUPL <0 => Capitulations Phase (In this phase most of the big players buy the asset for the long term and bottom creation )

• 0<RUPL< =25% then it is considered as Hope/Fear phase, in this phase the market trend is not clear and we can say its like a consolidation zone too.

• 25% <RUPL< =50% then it is considered as Optism/Daniel Phase, in this time asset shows strong momentum towards the upside.

• 50%<RUPL<=75% then it is considered as Greed Zone where we may see some profit booking.

• 75%<RUPL<= 100% then it is considered as Europhia Phase. It is the extreme greed level.

Analysis:

• The very first bottom is being created in the year 2011 at that time BTC was at $0.80 USD only and the value of RUPL was %50.

• BTC started the rally and made a high of $29.00 this was a kind of bull run at that time. As you can see in the picture this time the value of RUPL is 71% which is the Greedzone and the price reverses from there.

• It made another bottom is being created around $2.11 in the year 2012 at that time, you can get pizza from BTC. At that time the value of RUPL was -150%, after this Bottom, it started to rally again and made a high of $213 at that time the value of RUPL was 69%. It did not stop here it came down and made Double Bottom after the breakout of DB pattern it reached a new all-time high of $1090 at that time the value of RUPL was 68%.

• After making an All-time high BTC came down in the search of Bottom, finally got bottom at $200 at that time RUPL was -55%. Again after some consolidation, it started shooting and made a high of $13000 at that time RUPL was 75%.

• After the Bull cycle of 2015-2017, BTC entered the long Bear market of 2 years. It made low of $3200 which is the first bottom of the 2018-Till now Bull Cycle after that it made another local bottom of $5000. After this Double Bottom, BTC reached a new All-time High which is $64000 at that time the value of RUPL was %74.00

• It made a high of 64k then corrected almost 60% and made a Local bottom at 29k from there it started heating up and now currently ranging around 53k-55k.

Predict Future Price:

As per the previous Historical data, the second phase of Bull Run is just started and we can see another all-time high in the future also the value of RUPL is has not even crossed 50%. well, it may come down however as per the sentiment, it should not come down before breaking previous high.

Spent Output Price Ratio (SOPR):

SOPR helps us to identify Local tops and bottom in the Bull or Bear Cycle. For example, you will see in the Bull Run of March 2018 to Till now there are two bottoms one is $5000 and the second bottom is $29000 these two levels can be considered as Local Bottom of the Complete Bull Cycle.

• If the value of SOPR is greater than 1 that means the Investors are in the Profit and it may lead to a Local top.
• If the value of SOPR is exactly 1 then that means the Investors are in Breakeven and we may see momentum on any side.
• If the value of SOPR is less than 1 that means the Investors are at a loss and it may lead to a Local Bottom creation.

image source

Analysis:

In the Bull cycle of 2018 that is still running you can see other is total 3 Local bottom. The first $3200 bottom is being created in Dec 2018 when the value of SOPR was around 0.9 which is less than 1 and after this bottom, BTC reached to 13k which is a Local Top at that time the value of SPOR was 1.15. It started correcting to make a Local Bottom so that it can go further and make a new Local Top.

The second bottom $5000 is formed in March 2019 when the value of SOPR was around 0.84 and this is the time when Double Bottom pattern is formed. After the double bottom market started the rally and made a New All-Time high in the history of Bitcoin that is 64k which is the Top till now at that time the value of SOPR was around 1.04.

After making a New All-time high BTC corrected more than 50% and made a local bottom at 29k at that time the value of SOPR was around 1.05

Predict future Price:

As the growth of Bitcoin is increasing rapidly and we can see a very common pattern in the chart, whenever the price is making Local Bottom it is again going to make a new Local Top/Final Top you can say. So my prediction says as it corrected more than 50% already and made a Local Bottom of 29k so next it has the potential to make a new all-time high very soon.

---

Q3. Write down the specific use of Relative Unrealized Profit/Loss(RUPL), SOPR, and MVRV in the context of identifying top & bottom?

---

Use Case of Relative Unrealized Profit/Loss:

RUPL is an Onchain metrics Indicator that helps us to identify the potential Tops and Bottom in the overall Cycle. As we have discussed its calculation value and its phases. It helps us to identify the area where we may see profit booking or bottom creation and the good thing is that it's a leading indicator.

Use Case of Spent Output Price Ratio:

This is also an Onchain metrics data that helps us to identify the local Bottoms and Top within the Bull Market. As we have seen in the example in the bull run 2018-till now we have identified a total of 3 Bottoms, The very first or main bottom was 3200 then 5000 after that the recent one which is 29000.

MVRV is an On-chain Metrics that uses the transparency of Blockchain to identify the Tops and Bottom of the asset. This can b very helpful for the investors to identify where to when is the right time to make the positions.

Here is the Cheat code to read MVRV Ratio-
a) If the MVRV ratio > 100% or above 1 and it is creating Higher High (HH) & Higher Lows (HL) then it will be considered as an Uptrend market.

b) If the MVRV Ratio < 100% or below 1 and it is creating Lower Lows (LL) & Lower Highs (LH) then it will be considered as a Downtrend market.

MVRV Ratio is an amazing On-chain metrics tool that helps us to know the trend of the market and large view of any asset. Also, it helps to identify the potential Tops and bottoms of the asset. It can be helpful to take New Position in the Spot for the long term. I have explained in detail when we can take a new position using the MVRV ratio- Last Assignment.

All above indicator are used to identify the Top and Bottoms in different time frame and with different calculations. Onchain metrics are very helpful for the long term analysis and some of them are leading and some of them are lagging.

---

Conclusion

---

These all Onchain metrics tools are very helpful in the long term analysis some are leading and some are lagging, however, we can combine some of them then our prediction can be improved like we can mix MVRV ratio with RUPL as both are ratio and help us to identify the Tops & Bottoms on the bigger picture. SOPR is good for the short-term analysis and it can give some idea from where the bottom/top can be made.