One of the most exciting features of the blockchain, as we currently know it
(something could change in the future, via Taproot), is the possibility of knowing when a particular coin was moved, or more precisely, when a specific UTXO was created.
Associating this knowledge with the prevalent market price, we can understand how much an on-chain trade performs.
Glassnode, for example, has a series of measures of that.
One of the most interesting is the Net Unrealized Profit/Loss
Net Unrealized Profit/Loss is the difference between Relative Unrealized Profit and Relative Unrealized Loss. For more information see this article. This metric can also be calculated by subtracting realised cap from the market cap and dividing the result by the market cap as described in this article.
One intuitive way of thinking of it is the second way they exposed it: subtracting the realised market capitalisation from the realised market.
This is the average P&L of every UTXO.
A positive (negative) value means the average UTXO is in profit (loss) of the corresponding amount.
If NUPL is positive 20%, the average UTXO is now in-the-money, in profit, of the 20%.
Please note that the base metric is the current market capitalisation, not the original one.
This has two main effects:
- THe measure is not numerically distorted by deep in the money UTXO from the very beginning, which is several thousand percentage points in the money, having been moved at very low levels
- The measure can get to values. below-100% as the denominator is the CURRENT market calculation. A UTXO last moved at 60,000 USD, when the market is trading at 20,000 USD, has a UNPL of -200%.
So the NUPL is not numerically distorted, but to best capture the nature of the market is better to look at median values rather than an average value.
The average is the total quantity we want to measure, divided by the instances of the distribution: average wealth is the total wealth of the population, divided by the number of people in the population.
The median is the instance of the population that sits in the "middle" when we order the population from the smallest value to the largest one. The median wealth is the wealth we can expect to see when we randomly pick someone in the street.
There are cases when the two values diverge by much: think of a very poor African country of 60 million very poor people where the dictator is Elon Musk (a famous African-American dictator, after all): the average wealth of this African country would probably be quite high: is the wealth of Elon Musk divided by the 60 millions of people. (3,500 USD).
What would be the median wealth? 0 USD.
If we randomly pick a citizen of that county, he would probably have zero wealth.
While reading an essay comparing average and median wealth for a series of nations, I had the idea of this indicator.
Where is the median wealth of the United States?So I think it would also be nice to have such a measure of "median" wealth in the Case of NUPL.
I think it would be helpful to calculate the NUMPL Net Unrealised Profit and Loss.
Net Unrealized Median Profit/Loss is the difference between Relative Median Unrealized Profit and Relative Median Unrealized Loss.
where:
Median Unrealized Profit is defined as the profit (in USD) of the median coin in existence whose price at realisation time was lower than the current price, normalised by the market price.
Median Unrealized Loss is defined as the loss (in USD) of the median coin in existence whose price at realisation time was higher than the current price, normalised by the market price.
As I expect the distribution of UTXO to be somewhat skewed by many high-value, highly profitable coins, maybe this measure will "correct" the estimate by the "random" factor: how profitable is the "random" investor in Bitcoin?
For all those reasons, I suspect this measure has a way more negative outcome than NUPL.
What do you think? Is it easy to compute?
Cany we propose the idea to Glassnode and or to Tuur Demeester?
