On-Chain Data School (Part 5): How Many People Are Actually Making Money? A Five-Minute Tour to Understand the Objective Sentiment Indicator PSIP

Original Article Title: "On-chain Data School (Part 5): How Many People Are Actually Making Money? A Five-Minute Introduction to the Objective Sentiment Indicator PSIP!"

Original Article Author: Mr. Berg, On-chain Data Analyst

This article is the 5th part of the On-chain Data School series, with a total of 10 parts. Take you step by step to understand on-chain data analysis. Interested readers are welcome to follow this series of articles.

Related Reading: "On-chain Data School (Part 4): Visualizing the BTC Chip Price Distribution Map"

TLDR  

- This article will introduce the on-chain metric PSIP  

- PSIP = Percentage of Supply in Profit, among circulating $BTC  

- It can serve as a guide to market sentiment, with applications in recognizing market tops and bottoms  

What is PSIP?

PSIP, which stands for Percent Supply in Profit, is defined as "the percentage of circulating $BTC that is in a profitable state of chips."

Calculation method:  

By "comparing the last transfer price of each $BTC with the current price" to distinguish between profitable and unprofitable chips.

When the current price is higher than the last transfer price of a certain $BTC, this $BTC is considered a profitable chip.

What if Most Chips Are Losing Money...?

An important application scenario of PSIP is in recognizing market bottoms. When most chips are losing money, it is usually a good time to buy the dip.

The logic is straightforward:  

Under otherwise similar conditions, the more profit-takers there are, the greater the selling pressure from profit-taking in the market, and vice versa.

As shown in the chart below, the historical time points when $BTC had PSIP <50% are marked, showing that the timing for buying the dip is very accurate.

What if the Majority of Chips are in Profit?

As shown in the chart below, the highest percentage of chips in profit is 100%. Therefore, it is difficult to determine the top based solely on a high PSIP.

Here is an interesting logic to share:  “Observe the correlation between PSIP and price change”

This idea is derived from the following analysis:  The Market Pulse – Week 36, 2022  

Original Article Link