This article is the third in the On-Chain Data Academy series, with a total of 10 articles. It will guide you step by step in understanding on-chain data analysis. Interested readers are welcome to follow this series.
Previous Summary: On-Chain Data Academy (I): Do you know what the average cost of BTC in the entire market is?
Background Supplement: “On-Chain Analysis Beginner’s Course” fully grasps the key indicators of the crypto market, covering concepts and tools.
TLDR
This article introduces the on-chain indicator Realized Profit.
Realized Profit shows the volume of profits taken by the market daily.
Large amounts of Realized Profit are typically caused only by holders of low-cost assets.
Market tops are usually accompanied by large volumes of Realized Profit.
Introduction to Realized Profit & Realized Loss
Realized Profit refers to the total profit realized from BTC that are sold based on the price at the time of the “last transfer” compared to the “previous transfer.” By calculating how much BTC is profit-taking each day and summing these amounts, we can obtain the daily Realized Profit.
Of course, if the price at the last transfer is lower than the price at the previous transfer, it will be counted as “Realized Loss.”
(Realized Profit & Realized Loss Chart)
Large Amounts of Realized Profit Are Typically Caused by Low-Cost Asset Holders
As shown in the figure below, high-cost asset holders do not have much profit margin, so when they sell, the Realized Profit generated is not substantial.
Therefore, when we see large amounts of Realized Profit, it usually indicates that low-cost holders are offloading BTC.
(Realized Profit Calculation Illustration)
Market Tops Are Usually Accompanied by Large Amounts of Realized Profit
When a large number of low-cost asset holders sell their BTC, we will see a significant amount of realized profit accumulate on the chart.
At this point, since the remaining market participants have higher costs, the market price is close to their cost price. Once the sentiment shifts slightly, it becomes easier for them to panic sell, leading to a chain reaction of price declines, forming a market top.
(Market Tops Are Usually Accompanied by Large Realized Profit)
Conclusion
This concludes the content of the On-Chain Data Academy (III). Interested readers who want to learn more about on-chain data analysis are encouraged to follow this series!
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I hope this article has been helpful to you. Thank you for reading.