Profit Supply in Bitcoin is Increasing: What Does This Mean?

• On-chain data shows that 75% of the circulating Bitcoin supply is currently in profit.
• The profit supply metric works by examining the history of each Bitcoin on the chain to determine at what price it was last moved/transferred.
• This sudden increase in the metric occurred as the cryptocurrency rallied towards the $31,000 level, putting many investors in a profitable position.

According to the latest on-chain data, 75% of the circulating BTC supply is in profit; Could investors be inclined to sell?

75% of Circulating BTC Supply in Profit

On-chain data shows that 75% of the circulating Bitcoin supply is currently in profit, which could lead to a decline in this asset. As noted by a CryptoQuant analyst, there may be a risk for investors to join in on profit-taking here. “Profit supply,” as the name suggests, is an indicator that measures the total amount of circulating Bitcoin supply holding unrealized gains.

This metric works by examining the history of each Bitcoin on the chain to determine at what price it was last moved/transferred. If the previous price of a BTC is lower than the current spot price, it is determined to be in profit, and the indicator adds it to its value. “Loss supply,” on the other hand, is the opposite indicator of profitability and tracks BTCs that have an acquisition price higher than the latest spot price.

An increase in the profit supply value means that more investors are making profits. Generally, as an investor makes a profit, the likelihood of selling increases. Therefore, the presence of some gains in BTC could make a widespread selling wave more likely in the industry.

Here is a chart showing the 7-day simple moving average (SMA) of Bitcoin profit supply trend:

As seen in the above chart, the 7-day SMA of Bitcoin profit supply has recently experienced a sharp increase. This sudden rise in the metric occurred as the cryptocurrency rallied towards the $31,000 level, putting many investors in a profitable position.

A Short-Term Decline Possible in Bitcoin

Based on the indicator values, approximately 75% of the total circulating supply of the cryptocurrency holds some unrealized profit. Naturally, this means that many investors may consider realizing a portion of their gains. If investors sell here, the price of the asset could experience at least a short-term decline.

Looking at the chart, it can be observed that the current level of the indicator is the value at which the asset reached a local peak in April of this year and encountered resistance at the beginning of 2022. Now, it needs to be observed whether the market will overcome this psychological barrier and allow the Bitcoin rally to continue.