On-Chain Metrics(Part-3)- Steemit Crypto Academy- S4W5- Homework Post for @sapwood
- Calculate Relative Unrealized Profit/Loss.
We can discover if the individual coins in a UTXO are in a condition of unrealized profit or loss by looking at the delta between the price when the UTXO was formed and the current price of an item (price has decreased). We can see how much of the network is profitable and how much is losing when we look at it over the full network.
Relative Unrealized Profit and Loss check the difference between Unrealized Profit and Unrealized Loss to find if the asset is at the profitable zone or not.
As per the above image, the blue arrow up and down is the level of 0. When the value goes above 0 is the indication for the asset network is in profit. Similarly, when the value goes below 0 is the indication for the asset network is at a loss.
Calculation.
Relative unrealized Profit & Loss are calculated by the difference between a realized cap and the market cap and then further divide the result with the market cap.
Relative Unrealized Profit/Loss = Market Capital − Realized Capital / Market Capital
How it is different from MVRV Ratio?
Market Value To Realized Value (MVRV) ratio focuses on the difference between the Market Capital and Realized Capital like Market Capital / Realized Capital, accordingly helps to find the market top and bottom levels.
Relative unrealized Profit & Loss is not only focused on Market Capital and Realized Capital but also the result is divided by the market capital to find the asst network is in a profitable trend or in the loss trend.
- Spent Output Profit Ratio (SOPR).
The Spent Output Profit Ratio (SOPR) indicator gives micro information on market conditions, information on profits, and losses during a certain time period. It represents the amount of profit realized for all coins transferred on-chain.
Spent Output Profit Ratio (SOPR) is calculated by dividing the difference between the currency value at the moment of when the coin last moved as per UTXO generation and the currency value when the UTXO is spent by the period considered like daily, hourly.
The calculation of Spent Output Profit Ratio (SOPR) is start from level 1,
Spent Output Profit Ratio (SOPR) value is more than 1, it means that the coins traded that day are selling for a profit on average.
Spent Output Profit Ratio (SOPR) value is less than 1, the coins sold that day are selling at a loss on average.
Spent Output Profit Ratio (SOPR) value is exactly 1 indicates that the coins traded that day are selling coins at break even on average.
Spent Output Profit Ratio (SOPR) trending upward means profits are being realized, with the possibility of previously illiquid supply being reintroduced to the market.
Spent Output Profit Ratio (SOPR) trending downwards means losses are realized or coins are not spent that are profitable.
Calculation.
Spent Output Profit Ratio (SOPR) is estimated by comparing the realized price value of a spent output with the price of value at the time of the creation of the original UTXO. The price can be in USD.
Spent Output Profit Ratio (SOPR) = Price value of a spent / Price value of a creation
How it is different from MVRV Ratio?
As mentioned above, Market Value To Realized Value (MVRV) ratio focuses on the difference between the Market Capital and Realized Capital like Market Capital / Realized Capital, accordingly helps to find the market top and bottom levels.
However, the Spent Output Profit Ratio (SOPR) is defined by the price of value that is spent divide by the price of value that is at the time of creation. This helps to identify the market Bullish and Bearish Sentiment.
In order to demonstrate the On-Chain Metrics fundamental Analysis Model, I will be using the On-Chain Metric platform lookintobitcoin to show the information on Relative Unrealized Profit/Loss. I will be also using another On-Chain Metric platform Glassnode to show the information on Spent Output Profit Ratio (SOPR).
Relative Unrealized Profit/Loss.
The principle of the Relative Unrealized Profit/Loss in the fundamental study is as mentioned when the price is above 0 then the asset network is in profit and when the price is below 0 which mean the asset network is at a loss.
The price range between 55 to 75 is a Greed zone and above 75 is where the Top levels create. The price range below 0 is where the bottom level creates.
The above image is a BTC chart from the year 2010 to 2022, if we look at the chart so we can see starting 2010, the Relative Unrealized Profit/Loss was between 55 to 75 which is a Greed zone and at the same, it has made 3 Top which means 3 times went above 75 levels.
After that close to 2012 when Relative Unrealized Profit/Loss went down from 75 to below 0, we can see the effect on BTC price that it also went down. The bottom is the level where we can buy the asset as it's a level that it is possible to raise the price of the asset.
As per the above situation, we can see similarities in the year 2014 to mid of 2014, and again in 2018 to mid of 2018. Here we can see when Relative Unrealized Profit/Loss cross 0 levels and went below the price of an asset is also down, then when it went above 0, the price of an asset is rise further.
Spent Output Profit Ratio (SOPR).
Spent Output Profit Ratio (SOPR) on-chain fundamental analysis is to look at the difference between the price paid and the price sold for assets entering and exiting wallets, also it determines if the asset being sold is profitable or not.
As mentioned above, I will be using the On-Chain Metric platform Glassnode to perform the fundamental analysis information on Spent Output Profit Ratio (SOPR), below is the same.
The above image is a BTC chart from the last two years November 2019 to September 2021. How this indicator works from a fundamental standpoint, we talk about it in terms of looking at spent outputs in asset relative to values at creation in asset terms in currency price, so we are dividing the realized value price of spent output by the value of creation.
| With the help of the indicator Spent Output Profit Ratio (SOPR), we just need to see whether people are in loss or in profit when they sell their asset, are peoples in profit or loss if they sell their coins today's market status. |
As per the above chart, if the SOPR ratio is above 1 level which means the people sold their coin in profit, but when the SOPR ratio is below 1 level which means the people sold their coin at a loss.
At the start of November 2019, we can see that the SOPR ratio is above 1 level which means those people have sold their coins in this duration, they have sold when the network is in profit.
March 2020 we can see big deep below level 1 which means huge pressure is in selling coins but those who sold at this situation mean they sold in a loss.
In January 2021, we can see the majority of coins sold in profit because the SOPR ratio was above 1 level, then in July 2021, we can see SOPR ratio a small deep below 1 level which means people have sold their coins in the loss.
The current situation is, SOPR ratio is just above level 1 which is the average level, and as mentioned above when Spent Output Profit Ratio (SOPR) value is exactly 1 indicates that the coins traded that day are selling coins at an even break on average, which mean people are currently selling their coin on average.
Specific Use Of Relative Unrealized Profit/Loss, SOPR, and MVRV In The Context Of Identifying Top & Bottom.
- Relative Unrealized Profit/Loss.
The specific use of Relative Unrealized Profit/Loss is to find out whether the asset network is in profit or in a loss.
The ratio of Relative Unrealized Profit/Los from 0 is to identify the asset network Tops and Bottoms, this helps to the investor to know where to take profit and when entering into the market. As we know we should enter into the market at the bottom level and take profit at the top level, please check the below chart for example which is taken from the the On-Chain Metric platform lookintobitcoin.
In the above BTC chart, I have drawn the rectangles, also labels to Tops and Bottoms. As we know the market behavior the price of assets falls from the Top levels due to resistance zone and possibilities for selling pressure, similarly price rise from the bottom level due to buying pressure.
According to the indicator of Relative Unrealized Profit/Loss, investors should book profit at the top level and wait for the bottom level to re-enter the market. According to this, we can see how the asset price reacting to the market as per the indicator of Relative Unrealized Profit/Loss.
- Spent Output Profit Ratio (SOPR).
The specific use of Spent Output Profit Ratio (SOPR) is to know whether the selling asset is in profit or loss.
As an investor, it helps to identify the top levels of asset network in profit and bottom levels asset network in a loss. Please check below chart example which taken from On-Chain Metric platform Glassnode.
In the above BTC chart, I have drawn the rectangles, also labels to Tops and Bottoms. As we know the market behavior the price of assets falls from the Top levels due to resistance zone and possibilities for selling pressure, similarly price rise from the bottom level due to buying pressure.
According to the indicator of Spent Output Profit Ratio (SOPR), investors should sell their assets in profit which means at the top level when the SOPR ratio is above 1 near to last top. New buyers or investors can reenter at the bottom level when the SOPR ratio is below 1 near the last bottom.
We can see on the above chart that how the asset price reacting according to the indicator of Spent Output Profit Ratio (SOPR) and how the price rebounds from SOPR Top levels and Bottom levels.
(NOTE: Investor who brought but did not sell at the top level when SOPR ratio was above level 1 and if currently, SOPR ratio is below level 1, those investors at this situation can wait or buy more to average something but should not sell because you will be selling in loss level and there is a possibility for the buying pressure from the bottom level which could rise asset price in the coming trading session, so make sure you do not sell the asset when network is in a loss which means when SOPR ratio is below level 1.)
- Market Value To Realized Value (MVRV).
The specific use of the indicator Market Value To Realized Value (MVRV) is to find out whether the assets price is above its fair value or below, accordingly helps to identify the market tops and bottoms levels. Please check the below chart example which is taken from Santiment.
In the above BTC chart, I have drawn the arrows, also labels to Tops and Bottoms. As we know the market behavior the price of assets falls from the Top levels due to resistance zone and possibilities for selling pressure, similarly price rise from the bottom level due to buying pressure.
According to the indicator of Market Value To Realized Value (MVRV), investors should sell their assets at the top level as per MVRV because selling pressure may be expected at this level due to asset price is above its fair value (overvalue) which turns asset price down. New buyers or investors can reenter at the bottom level as per MVRV because buying pressure may be expected at this level due to asset price is below its fair value (undervalue) which turns asset price up.
We can see on the above chart that how the asset price reacting according to the indicator of MVRV and how the price rebounds from MVRV Top levels and Bottom levels and help to an investor to sell/enter at right time.
(All Charts screenshots in this post are taken by me from my own study and the On-Chain Matric Chart platform used for this post is lookintobitcoin, Glassnode and Santiment)
Disclaimer.
This article is just for an educational purpose to provide information on the On-chain Matric indicators that are Relative Unrealized Profit/Loss, MVRV, and SOPR. This article is a Homework task submission for Steemit Crypto Academy. This article is not intended for any investment in assets that are shown in the Charts. The indicators are not always 100% accurate hence kindly do your own study and research before any investment. This article will be not responsible for any loss if you trade on the given information.
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