Bitcoin SOPR Approaches Key Retest, Will Bulls Find Victory?
On-chain data shows that the Bitcoin Spent Output Profit Ratio (SOPR) is approaching a retest of a very important line. Will the bulls manage to come out on top?
Bitcoin SOPR again approaches Bull-Bear Junction Retest
As pointed out by an analyst in a CryptoQuant post, SOPR is approaching a value of 1. “SOPR” is an indicator that tells us whether the average investor in the Bitcoin market is selling his coins at a profit or a loss. now.
When the value of this metric is greater than 1, it means that the overall market is moving coins with some profit right now. On the other hand, values below the threshold mean that the holders as a whole are realizing some loss at the moment.
Naturally, when SOPR has values exactly equal to 1, it means that the profit realized in the market is exactly equal to the loss right now, suggesting that the average investor is just breaking even on his investment.
Now, here is a chart showing the trend of the 7-day simple moving average (SMA) Bitcoin SOPR over the past few months:
The 7-day SMA value of the metric seems to have been going down in recent days | Source: CryptoQuant
As shown in the graph above, the 7-day SMA Bitcoin SOPR had recently broken above the 1 level as the BTC price rose. This means that the price increase got enough investors into the green that they could sell their coins at a net profit.
Prior to this breakout, the indicator had been stuck below the 1 mark for most of the past year. From the chart, it is clear that when the metric was below the level, it attempted many new tests, but they always failed and the calculation was rejected down (along with the price).
This trend was not unusual and had already been observed in previous bear markets. The reason this happens is that the SOPR value equal to 1 acts as a psychological level where investors believe that they have got their money “back” (which they previously lost to carry market losses), and therefore a large amount of selling takes place here , thus providing resistance to the price.
However, in bull markets, the average holder begins to see the break-even mark as a profitable entry into the market (since they are convinced that the price will go up in the near future), so they start buying here instead. This causes the line to tilt into a support level for the price.
From the chart, it is visible that just a few days back, the 7-day SMA Bitcoin SOPR tested this level from above and the line successfully acted as support, which could be an early sign that a move towards a bull-dominated market is in progress right now.
With the latest decline in price today, SOPR is falling again and is approaching a retest of this key line. It now remains to be seen if bulls will win and the price will bounce back successfully, or if bears will once again enter the driver’s seat and SOPR will dive below 1 again.
BTC price
At the time of writing, Bitcoin is trading around $21,800, down 7% in the last week.
Looks like the value of the asset has declined recently | Source: BTCUSD on TradingView
Featured image from Maxim Hopman at Unsplash.com, Charts from TradingView.com, CryptoQuant.com
