This Crypto Indicator Has a 100% Hit Rate

|January 30, 2024

Fear is back in the crypto market.

Many had expected the launch of the long-awaited Bitcoin ETFs to instantly spur a run higher in crypto.

Instead, it turned into a “sell the news” event. That prompted questions like this one from Manward subscriber Al W…

The Bitcoin spot ETF has been all the hype over the past several months. Now that the SEC has approved 11 of them, why is Bitcoin falling so fast? All the hype had it rocketing higher.

But there’s no reason for worry. All signs point to this being a simple pullback in the context of a bull market.

And I have the data to back that up.

Steep Corrections Are Normal in Crypto

In the crypto market, pullbacks are closer to the rule than the exception.

Historically, Bitcoin has experienced significant drawdowns even amid overall bullish trends. These pullbacks are normal and often healthy for the market. They shake out weak hands and set the stage for the next run-up.

Take, for instance, the 2017 bull market. Bitcoin saw several corrections of over 30% on its way to setting its then all-time high near $20,000. One notable pullback occurred in September, when Bitcoin dropped from about $5,000 to below $3,000 – a plunge of 40% – before recovering and rallying to its peak in December.

In 2021, Bitcoin had a similar run. After hitting a high of around $64,000 in April, it retraced to nearly $30,000 by July – a 50% correction – before recovering and rallying to new highs later in the year.

The current pullback following the ETF launches can be viewed in the same light – a temporary setback within a broader bull market.

But that’s not the only reason I see crypto rallying in 2024.

This Indicator Has a 100% Hit Rate

Back on April 16, 2023, I wrote this to my thousands of readers:

I’ve invested in Bitcoin since 2017. I wrote about my experience investing in the crypto space in my 2022 book A Beginner’s Guide to High-Risk, High-Reward Investing. Based on my background, I’d say we’re currently near the start of a new market cycle.

This was far from the consensus at the time. We were only a few months removed from the FTX collapse. Crypto was in its worst bear market in years.

However, this prediction wasn’t based on a gut feeling… It was based on one of the most reliable barometers of the crypto market, the net unrealized profit/loss (NUPL) indicator.

Imagine NUPL as a mood meter for Bitcoin holders. It’s all about figuring out whether people are sitting on profits (meaning they’re happy) or losses (meaning they’re not so happy) with their Bitcoin.

NUPL calculates whether all of the Bitcoin out there is currently worth more or less than it was worth when it was bought. If your Bitcoin’s value has gone up, you’ve got an unrealized profit. If it’s gone down, you’ve got an unrealized loss.

Bitcoin - Net Unrealized profit/loss

NUPL adds up all these profits and losses. The end result? A simple number. If it’s above zero, more people are in profit, meaning the overall mood is optimistic. If it’s below zero, more people are in the red, and the mood’s likely downbeat.

So what is NUPL saying now?

Buy, Buy, Buy

There are some general rules to follow when using NUPL.

First, any reading below 0% is considered the “capitulation zone.” The best time to buy is when we’re in the capitulation zone, as it means most Bitcoin investors are sitting on massive losses. For example, NUPL hit a low of -20% after the FTX collapse.

On the flip side, a reading above 75% has nearly always coincided with a peak in the crypto market. And at present, NUPL is at 42%, implying that we are at most midcycle in this crypto bull run.

So even though Bitcoin is up more than 150% from its lows (and other cryptos are up many times that), this indicator says crypto is still a buy.

It’s important to remember that investing in crypto requires having a stomach for volatility and a long-term perspective. Pullbacks, even sharp ones, are part of the deal with this dynamic and rapidly evolving asset class.

As someone who first started investing in crypto in 2017, I’ve seen multiple cycles at this point and have developed an appetite for volatility.

Whether you’re new to crypto or have been around the crypto block… I’m here to help you make the most of this bull run.

Stay safe out there,