Bitcoin's On-Chain Bottom Signal and the Path to Recovery in 2026

Bitcoin's market cycles have long been a subject of fascination for investors, with on-chain metrics offering critical insights into turning points. Among these, the Profit Supply/Loss Supply ratio-particularly for short-term holders-has emerged as a robust cyclical indicator. Historical data and recent on-chain dynamics suggest that Bitcoin may be entering a pivotal phase in 2026, with the potential for a sustained bull run.

The Profit/Loss Supply Ratio: A Cyclical Compass

The Profit Supply/Loss Supply ratio measures the proportion of Bitcoin units held in profit versus those in loss, with a focus on short-term holders (typically those holding for less than 155 days). This metric reflects speculative behavior and market sentiment, often aligning with major price inflections.

In late November 2025, the ratio plummeted to 0.013, a level not seen since the 2018 bear market bottom. At this point, 2.45 million BTC were in loss, while only 30,000 BTC were in profit. Such extreme pessimism among short-term holders historically precedes sharp reversals. For instance, similar ratios in 2015 and 2018 signaled consolidation and correction phases, respectively. By early 2026, the ratio had rebounded to , indicating a gradual shift in sentiment. Analysts like Glassnode note that when this metric approaches or exceeds 1, Bitcoin typically enters a prolonged bull phase.

Historical Case Studies: Validation Across Cycles

The 2015–2020 period provides compelling evidence of the ratio's reliability. In 2015, Bitcoin's market was in consolidation, with 60% of supply held long-term by investors. By 2018, the ratio reflected a bear market, as short-term holders faced losses after the 2017 peak. Conversely, the 2020 recovery saw the ratio normalize as institutional adoption and price trends improved.

Academic studies further validate this pattern. A 2025 analysis found that the MVRV (Market Value to Realized Value) ratio-a closely related metric-dropping below its 365-day moving average in mid-2021, June 2022, and early 2024 preceded rallies of 135%, 100%, and 196%, respectively. These findings underscore the ratio's utility in identifying cyclical bottoms.

2026: A Confluence of Signals

The current on-chain environment in late 2025 mirrors historical bottoms. in early 2025, indicates that the average Bitcoin unit is in 32% unrealized profit-a sign of stability. This aligns with broader market maturation, as speculative extremes (e.g., MVRV peaks of 2.78 in 2024) have diminished.

Moreover, the 2024 halving event-a protocol-driven catalyst-has historically triggered bull runs 12–18 months post-event. With 2026 now in view, the combination of a normalized Profit/Loss Supply ratio, reduced volatility, and institutional adoption (e.g., spot ETF approvals) creates a favorable backdrop for a sustained rally.

The Path to Recovery: Key Drivers

1. Institutional Participation: The 2024–2025 period saw increased institutional buying, with entities like BlackRock and Fidelity launching Bitcoin ETFs. This trend is expected to continue in 2026, bolstering demand.
2. Network Efficiency: The decline in speculative extremes (e.g., MVRV peaks) suggests a more efficient market structure, reducing the likelihood of abrupt corrections.
3. Halving-Driven Scarcity: With the supply of new Bitcoin halved, the protocol's deflationary narrative gains strength, historically driving prices higher.

Conclusion: A Bullish Outlook for 2026

The Profit Supply/Loss Supply ratio, validated by decades of market cycles, points to a high probability of a 2026 bull run. While risks such as macroeconomic volatility persist, the confluence of on-chain signals, institutional adoption, and protocol-driven scarcity creates a compelling case for optimism. Investors who recognize these cyclical patterns may position themselves to capitalize on Bitcoin's next major upward trajectory.