On-chain Metrics (Part-3) - Steemit Crypto Academy- S4W5- Homework Post for @sapwood.
Thank you, Prof; @sapwood for a wonderful class.
1. How do you calculate Relative Unrealized Profit/Loss & SOPR? Examples? How are they different from MVRV Ratio(For MVRV, please refer to this POST)?
We can calculate RUPL by subtracting Realized Value from the Market current price at a given time and then add all the kind of UTXO and weigh it with the total circulating market supply, the answer will give us either unrealised profit or unrealised loss.
To get hold of the act of Unrealized Profit/Loss relative to the market cap and relative to time, the Unrealized Profit/Loss is divided by the Market Cap and the answer is Relative Unrealized Profit/Loss.
Relative Unrealized Profit/Loss(RUPL)= (Market Cap−Realized Cap)/Market Cap
SOPR is the ratio of the sum of the spent value to the value of the UTXOs that has already been created.
For a person or a group, it is simply the ratio of price sold to the price paid.
To compute SOPR for an asset and a period then we take all the spent outputs into account and divide it by the creation value of all the corresponding UTXOs to obtain the SOPR.
Example:
If we have two spent outputs. Let's assume the outputs are A and B. UTXO A has 2 LTC and UTXO B has 3 LTC. If the existing value of UTXO A was 20000 USD, and UTXO B was 10000 USD and suppose today both A & B are sold at 16000 USD, then SOPR can be calculated as:-
SOPR= Price Sold/ Price Paid
Price Sold= (2+3) x 16000 = 69,000
Price Paid= (3 x 20000) + (1 x 20000) = 80,000
SOPR= 69,000/80,000= 1.2
SOPR read is more than 1, so it means that the investor gain. Only if, SOPR reading is below 1 we can suggest that is a loss for the investor
MVRV Ratio= Market Cap/Realized Cap
MVRV ratio tells us about the average profit/loss in the market. it is an indicator that's suitable for identifying the top & bottom. Higher MVRV mean there is more profit in the market and it may signal an upcoming sell-off. Likewise, a lower MVRV means either a retained earning zone or a bottom. So the optimal practice is to buy the asset with a low MVRV ratio and sell it at a high MVRV ratio.
Relative Unrealized Profit/Loss(RUPL)= (Market Cap−Realized Cap)/Market Cap
To get to know the behaviour of Unrealized Profit/Loss relative to the market cap and relative to time, the Unrealized Profit/Loss is divided by the Market Cap and that gives us the Relative Unrealized Profit/Loss. For a person or a group, it is simply the ratio of price sold to the price paid.
The difference between MVRV ratio and RUPL is that;
MVRV is useful to get market tops and bottoms but RUPL finds out the ratio of price sold and the price paid.
2. Consider the on-chain metrics-- Relative Unrealized Profit/Loss & SOPR, from any reliable source(Santiment, Glassnode, LookintoBitcoin, Coinmetrics, etc), and create a fundamental analysis model for any UTXO based crypto, e.g. BTC, LTC [create a model to identify the cycle top & bottom and/or local top & bottom] and determine the price trend/predict the market (or correlate the data with the price trend)w.r.t. the on-chain metrics? Examples/Analysis/Screenshot?.
Using RUPL and SOPR together might bring distorted results in the short term and you might not get to understand the picture. Furthermore, since the calculation are based on UTXO, it may work only for UTXO based chains.
screenshot from and edited with PicsArt by me
This chart reading is above 0.75, so it signifies a top and it points out upcoming profit-taking in the near term.
3. Write down the specific use of Relative Unrealized Profit/Loss(RUPL), SOPR, and MVRV in the context of identifying top & bottom?.
In RUPL
To know the different stages and to grasp the sentiment of the investors/Hodlers in the market, the ranges/thresholds of RUPL is categorized into the five parts:-
More than or Above 0.75 is Euphoria
0.50 to 0.75 is Greed
0.25 to 0.50 is Optimism- Denial
0.00 to 0.25 is Hope- Fear
0.00 or Below is Capitulation
In History, any reading that is above 0.75 have made Historic Tops in the BTC. Likewise, any reading below 0.00% has made historic bottom for BTC.
In SOPR
If SOPR readIng is greater than 1, then it means that the Hodler or investor has gained. However, SOPR that read below 1 implies a loss for the Hodler or investor.
When SOPR pervert way above 1, it creates a local top.
When SOPR pervert way below 1, it creates a local bottom.
If the SOPR reading approaches 1 or around 1, then it is a Buy signal.
If the SOPR reading approaches 1, it's still a sell signal.
In MVRV ratio
If the MVRV ratio reads above one or more than a hundred per cent and forms higher bottoms, then it's a strong bullish market signal.
If the MVRV ratio reads below 1 or less than a hundred per cent and forms lower tops, then it's a bearish signal or extended bearish market.
Conclusion.
Both MVRV ratio, RUPL and SOPR are based on the concept of "realized value" And they both use the transparency of blockchain-based transactions to make mark snapshots from that data.
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