BTC On-Chain Analysis: SOPR Struggles to Return to Positive Territory

BTC On-Chain Analysis: SOPR Struggles to Return to Positive Territory

BTC On-Chain Analysis: SOPR Struggles to Return to Positive Territory

In today’s on-chain analysis, BeInCrypto examines the SOPR ratio and its derivatives. The aim is to determine whether Bitcoin (BTC) market participants are likely to return to profit in the coming weeks.

The Spent Output Profit Ratio (SOPR) is an on-chain indicator that we calculate by dividing the value realized (in USD) by the value at the creation of an output spent (in USD). In other words, it is the sale price/purchase price.

Thus, we know that if the ratio is greater than 1, the owner of the asset sold makes a profit. On the other hand, if it is less than 1, he suffers a loss. The greater the deviation from 1, the greater the profit/loss.

For greater accuracy of long-term measurements, the so-called adjusted SOPR (aSOPR) is also used. This indicator does not take into account data on products with a lifespan of less than 1 hour.

SOPR approaches neutral levels

In an on-chain analysis from almost 2 months ago, BeInCrypto noted that in June, the SOPR indicator reached historic capitulation levels set by the rising support line (blue). This happened following a selloff in the cryptocurrency market, in which Bitcoin hit a low of $17,622. Additionally, the indicator suggested that the bull market had ended 13 months earlier during the May 2021 declines (red zone).

Currently, the SOPR (7D MA) has twice attempted to regain neutral territory near 1 (green arrows). Unfortunately, it was rejected, abandoned and currently sits at 0.98.

Despite this, the index is clearly up from the June lows and can be expected to try again soon to regain level 1 and enter positive territory for the first time since April 2022. If that happens, investors could jump back into profit territory, which would improve the overwhelmingly negative sentiment in the crypto sector.

Graphic aSOPR by Glassnode

The relationship between LTH and STH

Another derivative of SOPR is the so-called SOPR ratio. It shows the ratio of the indicator’s value for long-term (LTH) holders to short-term (STH) holders. Historically, this indicator has been very closely correlated with the price of BTC, being a good marker of macro lows and highs.

Chain Analyst @OnChainCollege tweeted an update of the SOPR indicator (7D MA), marking two lines of long-term support (orange) on it. Currently, the chart has reached the first line, signaling a potential bottom. However, a drop to the second line is still possible, which could be triggered by a sharp crash in the price of BTC.

Historically, the two previous bear markets of 2015 and 2018 ended with a return to the area of ​​the second lower support line. The analyst comments on this possibility:

“Nobody knows where the exact bottom of #Bitcoin will be, but I like to make long-term decisions based on historical and probabilistic thinking…”

Source: Twitter

For the latest Bitcoin (BTC) analysis from BeInCrypto, Click here.


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