Net Unrealized Profit Loss | JeffreyTimmermans

Net Unrealized Profit Loss (NUPL)

The "Net Unrealized Profit Loss" (NUPL) indicator is a highly regarded tool for assessing Bitcoin investor sentiment by analyzing the relationship between Market Value and Realized Value. This Pine Script implementation, developed by Jeffrey Timmermans, includes additional features such as dynamic labels, alerts, and thresholds with color-coded bands, enhancing its usability for traders and analysts.

Core Concepts Behind NUPL

Market Value (MV):

• Defined as the current Bitcoin price multiplied by the number of coins in circulation.
  
• Equivalent to market capitalization in traditional finance.
  

Realized Value (RV):

• Calculated by considering the price at which each Bitcoin last moved (e.g., transferred between wallets).
  
• The average price of all these transactions is multiplied by the total coins in circulation.
  

Net Unrealized Profit Loss (NUPL):

• Formula: NUPL = (Market Value − Realized Value) : Market Value × 100
  

Measures the proportion of paper profits or losses held by investors relative to the market cap.

Significance of NUPL:

• Tracks investor sentiment over time.
  
• A high NUPL value indicates that most investors are in profit, often signaling potential market overheating.
  
• A low or negative NUPL suggests pessimism and undervaluation, which may precede market recovery.
  

How to View the Chart

The NUPL chart uses distinct percentage bands to delineate various market phases. These bands provide context for understanding investor sentiment and market stages:

• Extreme Low Values (< 0%): Indicates widespread losses; the market may be near capitulation.
  
• Neutral Value (0%): A balance between profit and loss; often signifies a transition phase.
  
• Slightly High to High Values (> 0% to 50%): Increasing profits suggest growing optimism; early stages of bullish trends.
  
• Extreme High Values (> 75%): Signals overheating; often corresponds to excessive greed, which may precede corrections.
  

The colored bands visually represent these stages, enabling traders to identify key turning points.

Features of the Script

Querying Data

The indicator uses data from two key sources:

• Bitcoin Market Cap (MC1): GLASSNODE:BTC_MARKETCAP
  
• Bitcoin Realized Cap (MCR): COINMETRICS:BTC_MARKETCAPREAL
  

These values are fetched using the request.security function to ensure daily accuracy, regardless of the chart's timeframe.

Threshold Calculation

The script computes NUPL values dynamically and compares them against historical lows:

• Calculated using the ta.lowest function over a 1,000-bar lookback period.
  
• The average of the historical low and the current NUPL value, providing a dynamic baseline.
  

Value Classification

NUPL is categorized into sentiment levels with corresponding weights:

• < Low Threshold: 1 (Extreme Bearish)
  
• Low to 0: 0.75 (Moderate Bearish)
  
• 0 to 25: 0.25 (Neutral to Slightly Bullish)
  
• 25 to 50: -0.25 (Moderate Bullish)
  
• 50 to 75: -0.75 (Strong Bullish)
  
• > 75: -1 (Extreme Bullish)
  

Visual Elements

NUPL Line Plot:

• The NUPL line is plotted in orange for clear visibility.
  

Threshold Bands:
Horizontal thresholds ranging from -160 to 160 and are plotted, representing key sentiment levels. Bands are categorized as:

• Extreme High/Low Values
  
• Significant High/Low Values
  
• Neutral Values
  

Fill Colors:

• Red Shades (Bearish Sentiment): Above neutral levels.
  
• Green Shades (Bullish Sentiment): Below neutral levels.
  
• The opacity of fills decreases as sentiment moves from extreme to neutral values.
  

Dynamic Label:

• A real-time label displays the current NUPL value and sentiment classification.
  
• Positioned directly on the NUPL line for immediate insight.
  

Alerts:

The indicator includes two alerts for crossing key thresholds:

• NUPL Above 0% Alert: Triggers when NUPL crosses above the neutral value, signaling a shift to positive sentiment.
  
• NUPL Below 0% Alert: Triggers when NUPL crosses below the neutral value, indicating a shift to negative sentiment.
  
• Alerts are configured with alert.freq_once_per_bar to avoid redundancy during intra-bar fluctuations.
  

Use Cases

Identifying Market Extremes:

• Use NUPL levels to pinpoint moments of extreme greed or fear, which often precede market reversals.
  

Long-Term Strategy:

• NUPL trends can assist strategic investors in deciding when to accumulate during pessimistic phases or take profits during euphoria.
  

Market Sentiment Analysis:

• Provides a macro perspective on the prevailing investor sentiment, offering valuable context for trading decisions.
  

Conclusion

The Net Unrealized Profit Loss (NUPL) indicator combines advanced data processing with intuitive visualization to deliver actionable insights into Bitcoin market sentiment. With its real-time alerts, dynamic labels, and comprehensive banding system, this tool is indispensable for traders and investors seeking to understand and anticipate market movements based on sentiment analysis.

-Jeffrey