NUPL (Net Unrealized Profit/Loss)

What is NUPL?

Net Unrealized Profit/Loss (NUPL) is an on-chain sentiment indicator that measures the difference between unrealized profits and losses across all coin holders. It provides insight into market psychology by showing whether holders are collectively in profit or loss relative to their acquisition costs.

NUPL Calculation

NUPL is calculated as:

NUPL = (Unrealized Profits - Unrealized Losses) ÷ Market Cap

Or more precisely:

NUPL = Σ (Unrealized Profit/Loss per coin × Coin supply) ÷ Market Cap

NUPL Ranges and Interpretation

Sentiment Zones

• NUPL > 0.75: Euphoria - Extreme greed, potential market top
• 0.5 < NUPL ≤ 0.75: Optimism - Strong bullish sentiment
• 0.25 < NUPL ≤ 0.5: Hope - Moderate bullish sentiment
• 0 < NUPL ≤ 0.25: Belief - Mild bullish sentiment
• -0.25 < NUPL ≤ 0: Denial - Mild bearish sentiment
• -0.5 < NUPL ≤ -0.25: Fear - Moderate bearish sentiment
• -0.75 < NUPL ≤ -0.5: Despair - Strong bearish sentiment
• NUPL ≤ -0.75: Capitulation - Extreme fear, potential market bottom

Market Cycle Phases

NUPL typically follows these phases:

1. Accumulation: NUPL in denial/fear zones
2. Mark-up: NUPL moves from fear to hope
3. Euphoria: NUPL reaches optimism/euphoria zones
4. Distribution: NUPL declines from euphoria
5. Capitulation: NUPL reaches despair/capitulation zones

Historical NUPL Patterns

Notable historical readings:

• December 2018: NUPL reached -0.82 during bear market bottom
• March 2020: NUPL dropped to -0.78 during COVID crash
• November 2021: NUPL peaked at 0.82 before market top
• June 2022: NUPL fell to -0.65 during bear market

Trading Applications

Contrarian Signals

Use extreme NUPL readings for contrarian trades:

• Buy when NUPL ≤ -0.75 (capitulation)
• Sell/short when NUPL ≥ 0.75 (euphoria)
• Avoid trading in extreme zones

Risk Management

NUPL for position sizing:

• Increase exposure in fear/capitulation zones
• Reduce exposure in optimism/euphoria zones
• Use as confirmation for other signals

NUPL vs Other Sentiment Indicators

Comparison with similar indicators:

• NUPL vs Fear & Greed Index: NUPL is on-chain based, Fear & Greed uses multiple inputs
• NUPL vs MVRV Z-Score: NUPL measures sentiment, MVRV measures valuation
• NUPL vs Put/Call Ratio: NUPL is crypto-specific, Put/Call is traditional markets

Asset-Specific Characteristics

NUPL behavior varies by asset:

• Bitcoin: Most reliable historical patterns, established ranges
• Ethereum: More volatile, influenced by DeFi and NFT cycles
• Altcoins: Extreme volatility, less reliable for timing

Combining with Other Indicators

NUPL works best with:

• MVRV Z-Score: Valuation confirmation
• Realized Price: Cost basis analysis
• Exchange Netflows: Capitulation confirmation
• Funding Rates: Derivatives sentiment

Limitations and Caveats

Important considerations:

• Can remain in extreme zones longer than expected
• Influenced by large holders (whales)
• Doesn't account for fiat currency fluctuations
• Limited historical data for newer assets
• Can be manipulated by coordinated buying/selling

Advanced NUPL Analysis

NUPL Bands

Use statistical bands:

• 2σ bands for extreme conditions
• 1σ bands for normal conditions
• Custom bands for different assets

NUPL Momentum

Rate of change analysis:

• Rapid declines: Capitulation acceleration
• Slow recovery: Sustainable bottom
• Momentum divergence: Warning signals

Practical Implementation

Portfolio Management

Use NUPL for asset allocation:

• Increase crypto exposure in capitulation zones
• Rotate to cash/bonds in euphoria zones
• Rebalance based on NUPL signals

Trading Strategies

Common approaches:

• Mean reversion trading
• Momentum following
• Risk parity adjustments

Conclusion

NUPL is a powerful on-chain sentiment indicator that can help identify market extremes and potential turning points. When used as part of a comprehensive analysis framework, it provides valuable insights into collective market psychology and investor behavior.