Bitcoin Supply In Profit Jumps To 63%: Why Analysts Are Still Cautious

What happened

Adler's analysis highlights a substantial recovery in Bitcoin's Percent Supply in Profit (PSP). This metric, tracked on a seven-day simple moving average, has climbed from a low of 53.6% in March to an impressive 63.3% as of May 18. This bounce indicates that a greater percentage of the Bitcoin currently in circulation now holds an on-chain cost basis below the present market price, a clear improvement from the capitulation phase experienced earlier in the year. For Australian holders, this suggests that more of their digital assets are now sitting in the green, providing some relief after recent volatility.

However, Adler cautions that this recovery remains incomplete within his analytical framework. The current 63.3% figure is still roughly 10 percentage points shy of January's levels, which saw the metric above 72%. Furthermore, it remains below the historical cumulative average of approximately 76.9%. This suggests that while the market is in a recovery trajectory, it has not yet reached a normalised profitability regime. A sustained move above 70% would signal a more significant normalisation in the supply structure, according to Adler.

The more fragile and concerning signal comes from Short-Term Holders (STH). These are typically defined as entities holding Bitcoin for less than 155 days. The STH-SOPR, also on a seven-day simple moving average, recovered from a capitulation zone below 0.97 earlier this year. However, it has struggled to maintain its position decisively above the neutral 1.0 threshold. As of May 18, the indicator sat at 0.9994, just below neutral, with Bitcoin near the US$76,900 mark.

This metric is critical because it reveals whether short-term holders are realising profits or losses when they move their coins. A reading below 1.0 indicates that these participants are, on average, selling at a loss. The recent dip below this threshold, after a period above it in April, is a significant warning sign for Adler. While the indicator had stabilised in the 1.001 to 1.009 range when Bitcoin was trading around US$75,000 to US$80,000, the current pullback suggests that the market's recovery is still precariously reliant on price support.

Why it matters for Australian investors

For Australian investors navigating the often-turbulent cryptocurrency landscape, these on-chain metrics offer invaluable insights beyond simple price charts available on platforms like CoinSpot, Independent Reserve, Swyftx, or BTC Markets. The 'Percent Supply in Profit' metric directly correlates to how many Australian investors are currently holding Bitcoin positions above their initial purchase price. A higher percentage generally indicates improved market sentiment and reduced selling pressure, as fewer investors are underwater.

Conversely, the 'Short-Term Holder SOPR' is a critical behavioural indicator. If short-term holders – often more reactive to market fluctuations – are consistently selling at a loss, it can signal wavering confidence or a lack of strong conviction. This can impact the broader market as these participants contribute to immediate supply and demand dynamics. Australian investors, particularly those new to the market, might be more susceptible to these behavioural trends.

Understanding these on-chain signals allows Australian investors to assess the underlying health of the Bitcoin market rather than solely relying on daily price movements. It provides context to price action and helps in evaluating potential risks. For instance, if the market were to experience a significant downturn, the ATO's capital gains tax rules would still apply, regardless of whether holders are short-term or long-term. Knowing the on-chain profitability helps assess the likelihood of broad-based selling pressure that could lead to taxable events for those realising losses or gains.

Impact on the AUD market

The dynamics described by Adler, while global in nature, have direct implications for the Australian dollar (AUD) cryptocurrency market. When Bitcoin's overall supply in profit increases, and particularly if short-term holders begin to consistently realise profits, it can foster a more positive sentiment locally. This could encourage further capital allocation from Australian investors into Bitcoin and other digital assets, potentially increasing trading volumes on local exchanges.

However, the fragility highlighted by the STH-SOPR metric also means that any significant pullback or return to short-term holders selling at a loss could see Australian investors facing pressure. A sustained decline might lead to 'fear, uncertainty, and doubt' (FUD) spreading through local trading communities and a potential decrease in new capital entering the market. While Bitcoin is not directly pegged to the AUD, its price movements, influenced by global on-chain profitability, directly impact the AUD value of holdings for Australian investors.

The regulatory environment overseen by bodies like AUSTRAC and ASIC continues to monitor the crypto space for market integrity and consumer protection. While these on-chain metrics don't directly influence regulation, a healthier, more stable Bitcoin market, supported by sustained profitability, can contribute to a more mature ecosystem. This could, in turn, provide greater confidence for both institutional and retail investors in Australia, promoting a more stable local market beyond speculative trading.

What to watch next

The immediate focus, according to Adler, is whether the STH-SOPR can re-establish and hold above the critical 1.0 threshold. A key price zone for Bitcoin is between US$76,000 and US$77,000; defending this area could push the STH-SOPR back above 1.0. For a stronger confirmation of a sustained recovery, Adler suggests observing if the STH-SOPR remains above 1.0 for five to seven trading days, coupled with Bitcoin holding above US$78,000 to US$80,000.

Simultaneously, investors should monitor the 'Percent Supply in Profit' metric for a move towards the 68% to 70% range. This would signal a more robust normalisation in the supply structure. A combination of these two factors would provide a clearer indication that the market is transitioning from a recovery phase to a more stable, profitable environment. For Australian investors, this would mean greater confidence in their holdings and potentially a more favourable outlook for future price appreciation.

The downside scenario remains a tangible risk. Adler highlights a potential pullback to US$73,000 to US$74,000 as a significant threat. Such a move could drag the STH-SOPR back into the 0.98 to 0.99 zone, effectively stalling the current improvements and increasing the risk of retesting the March lows in 'Supply in Profit'. Australian investors should remain vigilant and consider these thresholds as key indicators for both short-term market health and potential shifts in the broader trend. As always, diversification and understanding one's risk tolerance, in line with regulatory guidance from ASIC, remain paramount.