Does Blockchain Metric Point to an Upcoming Bull Market in Bitcoin?

Recently, a certain blockchain indicator has changed, indicating that selling units of bitcoin held for a certain minimum period would bring profit.

Earlier today, CoinDesk reported that the long-term holder’s used production profitability ratio (LTH-SOPR) seven-day average exceeded a value of one for the first time since May of last year, citing data from Glassnode to make this claim.

SOPR looks at units of bitcoin moved on the chain, and measures how profitable it would be to sell the digital currency, according to Glassnode Academy.

When the value of this calculation exceeds one, it means that the sale of the mentioned units will bring profit, and when the value is less than one, it means that such a transaction will create a loss.

In addition to measuring profitability, this particular indicator can also give market observers some insight into sentiment, according to Glassnode Academy.

The LTH-SOPR specifically zooms in on units of this digital currency that have been around for at least 155 days, as specified in the CoinDesk article.

The article, written by Omkar Godbole, stated that when the value of LTH-SOPR went from a value of less than one to greater than one in November 2015, May 2019 and May 2020, it happened before the digital currency enjoyed bull runs that lasted for several year.

When analysts were asked to provide input on the LTH-SOPR, as well as its implications, for this article, they provided mixed responses.

“It’s a different way to gauge sentiment,” Joe DiPasquale, CEO of cryptocurrency hedge fund manager BitBull Capital, wrote in emailed comments.

“When the SOPR is above 1, it means that coins that moved during that period were profitable,” he noted. “A SOPR less than 1 means people at a loss were forced to sell.”

“Since a return to 1 and above means that long-term holders are finally starting to go green, it could also mark a shift in sentiment where these entities start to reduce selling pressure and even buy more,” Dipasquale said.

“However, we would not say that the indicator predicts a rally. It reveals a data point that usually coincides with a shift in sentiment.”

Tim Enneking, CEO of Digital Capital Management, described the assessment given by Godbole as “accurate” via email comments, but emphasized that “LTH-SOPR is not what is driving BTC and the crypto market in general. Likewise, on the downside, LTH- SOPR an indicator of a cause, rather than the cause itself.”

“There are four factors driving LTH-SOPR up and BTC and crypto prices up: peak interest rates (almost certainly next week), anticipation of BTC halving, FTX ‘forced’ capitulation and crypto bottom in mid-November, and more important than any of these, the breakdown in fiat stocks and BTC correlation,” he stated.

“Without the latter, crypto would disappear just like the S&P, which has barely moved this year.”

When asked about the impact these variables had on bitcoin, DiPasquale agreed, saying the following:

“Yes, there are general reasons why the market has gone up. And when market trends increase, SOPR inevitably goes above 1 at some point.”

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.

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