By Shelly Melancon (Switzerland)
The spent output profit ratio (SOPR) has declined below the 1 line for a considerable amount of time. It is the first time this is happening during the recently-ended bullish run. If the line isn’t reclaimed, the trend direction will turn bearish for another considerable length of time.
The Spent Output Profit Ratio (SOPR) Defined
The SOPR is an indicator that estimates the profit or loss of each crypto trade. This estimate is based on the difference between the sale and purchase prices. The result will determine whether the entire market is at a loss or profit.
When the SOPR value is less than one, it indicates that market participants are selling at a loss; the reverse is true when the SOPR value is greater than one. If the SOPR value remains at over one for a considerable length of time, it indicates that the digital currency’s market is in a bullish trend. During this period, sellers scarcely record a loss. The worst thing is for the SOPR to fall back to the one line but mustn’t fall below it.
The Present State
The SOPR value fell below the one line three times between the 2015 to 2017 bullish run. But each fall was brief, and the bounce was immediate and kept rising afterward. Between January 2018 and March 2020, the SOPR value fluctuated between over and slightly below the one line.
This indicates an uncertain trend direction. It re-tested the one line in September last year and moved over it slightly during the just-ended bull run. But two months ago, it fell below that line and hasn’t moved over it since that time. There are two deductions here; it can warn of an impending directional change or a sharper than usual retracement.
SOPR on the 7-day exponential moving average. Source: Glassnode
This occurrence is more explicit on the 24-hour timeframe. When viewed on lower timeframes, it is similar to what happened between January 2018 and March 2020.
SOPR on the 24-hour exponential moving average. Source: Glassnode
Also, the long-term SOPR holder continues to decline and is about to reach the 1 line. It suggests that holders are becoming impatient with some already selling at a below-market value to break even.
If the holders lose their patience completely, the regular SOPR will fall far below zero, which would confirm a change in the trend’s direction.
Long-term SOPR holder. Source: Twitter
Hence, the present direction would be a vital determining factor in the direction of the long-term trend. A consistently negative SOPR value would suggest a bearish trend. More importantly, long-term holders would go on a selling spree and cause another massive price decline.
Hence, the SOPR must reclaim the one line to avoid a long-term bearish trend. It is uncertain how long the current bitcoin price slump would persist even if MicroStrategy keeps buying more bitcoins.
China’s bitcoin miners shut down continues, and GrayScale is expected to unlock over 16,500 bitcoins which will likely cause a further price slump in bitcoin price.
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