Bitcoin SOPR Plunges, Why This Could Be Bullish
On-chain data shows that the Bitcoin Spent Output Profit Ratio (SOPR) has plunged recently; here’s why this could be bullish for the price.
Bitcoin SOPR has observed a deep plunge in recent days
As one analyst in a CryptoQuant post pointed out, many investors have sold at a loss recently. “SOPR” is an indicator that tells us whether investors are currently selling at a loss or profit.
This calculation looks at the chain of each coin that is sold or moved to see the price it was previously transferred at. If this last sale price for a coin was less than the price it was sold for, then the investor makes a profit on the sale. Similarly, the coin is sold at a loss in the opposite scenario.
When the value of this indicator is greater than 1, it means that the number of profits realized is greater than the losses right now. This suggests that the average investor is moving coins at a profit.
On the other hand, the calculation that has a value below this threshold means that loss realization is more dominant in the market. Naturally, SOPR equal to 1 implies that the holders break even when selling.
Now, here is a chart showing the trend of Bitcoin SOPR over the last few years:
The value of the metric seems to have dipped quite low recently | Source: CryptoQuant
As shown in the graph above, Bitcoin SOPR has been above 1 for much of the year 2023 so far. This means that the average investor has sold at a profit during this period.
This trend makes sense, as the asset’s price has observed strong bullish momentum in recent months. Rallies like these naturally entice investors to reap their gains, therefore there is an increase in profit selling during such price increases.
However, the indicator saw a sharp drop a couple of days back and the value dipped below the 1 level. This suggests that some holders have just realized a large number of losses.
In the chart, the quant has marked the points where similar downward peaks in the metric were observed over the past few years. Interestingly, every time the indicator has fallen sharply, the price has bottomed and followed up with a rally.
Such spikes in Bitcoin SOPR are usually a sign of capitulation by the loss holders. When these investors finally sell, coins move towards owners with stronger convictions and the selling pressure starts to wear off. This is probably why the price bottoms out near such capitulation events.
Earlier in the current rally, when BTC had also dipped below the $20,000 mark, SOPR saw such a peak. The final stretch of the rally, which has taken the price above $28,000, followed it.
If the same pattern that has been seen time and again also repeats itself for the recent SOPR plunge, Bitcoin may feel a bullish effect from it. Something different about the latest short sale, however, is that it has come while the price has already been at a relatively high level of $28,000.
All the previous instances of this trend came when the price had been facing an overall bearish wind. It remains to be seen whether this difference can lead to a different outcome for the price this time.
BTC price
At the time of writing, Bitcoin is trading around $28,100, up 4% in the past week.
BTC has mostly moved sideways recently | Source: BTCUSD on TradingView
Featured image from Michael Förtsch at Unsplash.com, Charts from TradingView.com, CryptoQuant.com
