Bitcoin Average Profitability Index Has Been Rising Recently

In a new post on X, CryptoQuant author Axel Adler Jr. discussed the latest trend in the Average Profitability Index of Bitcoin. The “Average Profitability Index” is an on-chain indicator that tells us about how the spot price of the asset compares against its realized price.

The “realized price” here is a measure of the cost basis of the average investor or address on the Bitcoin network. The Average Profitability Index is calculated as a percentage, with the 100% mark corresponding to the spot price being equal to the realized price.

When the value of this indicator is greater than 100%, it means the asset is currently trading above the cost basis of the average investor, so the overall market could be assumed to be in a state of profit. On the other hand, it being under this cutoff suggests the holders as a whole are carrying their coins at a net unrealized loss.

Now, here is a chart that shows the trend in the Bitcoin Average Profitability Index over the past decade:

As displayed in the above graph, the Bitcoin Average Profitability Index has been above 100% since last year, which suggests the investors as a whole have been enjoying profits.

The indicator’s value had spiked to particularly high values earlier in this year when the rally towards the new all-time high (ATH) had occurred. With the latest recovery run that the coin has seen, the indicator has been picking up once again, although it’s still a notable distance away from the level seen during the ATH.

At present, the BTC Average Profitability Index is floating around 202%, which implies the spot price is double that of the realized price. Historically, the indicator reaching extreme levels has generally led to tops for the asset.

This is because the investors’ temptation to participate in profit-taking increases the larger their gains. “When the index rises above 300%, investors are likely to start taking profits actively,” notes the analyst.

The chart shows that the last two times that the Bitcoin Average Profitability Index surpassed this 300% mark was during the heights of the 2017 and 2021 bull runs.

Thus, according to this historical pattern, Bitcoin’s current bullish period may not end until the indicator enters the zone above 300%.

BTC Price

At the time of writing, Bitcoin is trading at around $67,400, up 1% over the last seven days.

Very Few Bitcoin Addresses Are Still Underwater

In a new post on X, the market intelligence platform IntoTheBlock has shared an update on how the Bitcoin holder’s profitability is currently looking. The analytics firm has made use of on-chain data to determine this.

IntoTheBlock has gone through the transaction history of each address on the network to check the average price at which it acquired its coins. Wallets with a cost basis below the current price are assumed to carry some net unrealized profit.

Similarly, addresses of the opposite type are considered to be loss holders. The analytics firm terms the former investors “in the money,” while the latter are “out of the money.”

Naturally, the wallets with their average acquisition price equal to the latest spot price of the cryptocurrency would be just breaking even on their investment. They would be said to be “at the money.”

Now, here is how the address distribution on the Bitcoin network is like right now across these three categories:

As is visible above, around 95% of the existing Bitcoin holders currently have a net profit. About 3% of the remaining are at their break-even level, while the rest 2% are underwater.

Thus, the market distribution is currently overwhelmingly skewed towards profit holders. The reason behind this is the recent price rally the asset has gone through.

“With 95% of Bitcoin addresses now in profit, market sentiment is booming,” notes IntoTheBlock. “Historically, such levels have signaled strong bullish momentum but can also indicate a potential overextension.”

Generally, investors in profit are more likely to sell their coins at any point, so a large amount of them being in the green can raise the chances of a mass selloff occurring with the motive of profit-taking. This is why a high profitability ratio can suggest potential overheated conditions.

A huge amount of addresses are in the money right now, so it’s possible that another profit-taking event could happen. It remains to be seen whether demand would be enough to absorb the selling or if a top would take place for Bitcoin.

On a more bullish note, the Bitcoin inflows to “accumulation addresses” have spiked recently, as CryptoQuant community manager Maartunn has pointed out in an X post.

The accumulation addresses refer to the wallets that have no history of selling on the network. These perennial HODLers have just added a massive 56,700 BTC to their wallets, which could suggest they may be starting another phase of accumulation.

BTC Price

At the time of writing, Bitcoin is trading around $67,400, up more than 11% over the past week.