Bitcoin UTXO Buy Signal: Are We at the End of the Bear Market?

An on-chain indicator for Bitcoin is giving a buy signal for the first time since the end of 2022. The so-called net UTXO supply ratio is declining to extreme values, which historically coincides with market bottoms. Multiple indicators are now simultaneously pointing to exhaustion among sellers, although that does not automatically mean that Bitcoin cannot fall further.

Bitcoin is available at OKX and Bybit.

What the UTXO ratio tells about the market

UTXOs, short for Unspent Transaction Outputs, are a mechanism unique to Bitcoin. They ensure that each Bitcoin can only be spent once. Because a UTXO also contains information about the price, date and amount of a transaction, they provide valuable insights into the behaviour of market participants. By looking at the profits and losses of all UTXOs together, a picture emerges of how the market as a whole is doing.

The net supply ratio indicates whether the vast majority of Bitcoins are currently in profit or loss. If the ratio is negative, losses dominate and the market is in a phase where accumulation historically becomes interesting. Analyst Darkfost states that the ratio has been negative for a week now and has reached a value of -0.075, which corresponds to an official buy signal.

Similarities with the end of 2022

The last time this signal appeared was at the end of 2022, exactly at the low point of the previous bear market. That detail is remarkable, although the analyst points out that the indicator is not specifically designed to detect tops or bottoms. The aim is to determine how the available Bitcoin is distributed between large profits and large losses, so that investors can adjust their position accordingly.

Darkfost sees the signal as an indication that the current downward phase may be nearing its end. The Bitcoin price is at $58K at the time of writing, a decline of 0.9% in the past 24 hours. Multiple on-chain signals, including also the stock-to-flow model which indicates extreme undervaluation, are now pointing in the same direction. Still, caution is warranted: the analyst indicates that a further decline is still possible. The next step is a recovery in demand, but that could take some time.