Is the “Buy The Dip” Mentality Returning to Bitcoin? This calculation may indicate that

Data from this on-chain calculation is currently forming a pattern that may indicate that the “buy the dip” mentality is returning to the Bitcoin market.

Bitcoin aSOPR (7-day EMA) bounced off the 1 line recently

According to the latest weekly report from Glassnode, aSOPR has recently tested the 1 line again. “Adjusted Spent Output Profit Ratio” (aSOPR) is an indicator that measures the ratio of profit to loss realized in the Bitcoin market right now.

The calculation has “adjusted” in its name because it filters out all token sales that took place just one hour after the last one. Making this adjustment helps remove noise from the data that would have had no long-term impact on the market.

When the value of the indicator is greater than 1, it means that the average investor is selling coins at a profit at the moment. On the other hand, values ​​below the threshold suggest that the overall market is realizing losses at the moment.

Naturally, aSOPR having a value exactly equal to 1 implies that the holders only break even when selling right now, as the profit realized exactly offsets the losses.

Now, here is a chart showing the trend of the 7-day exponential moving average (EMA) Bitcoin aSOPR over the past year:

Looks like the 7-day EMA value of the metric has gone up in recent days | Source: Glassnode's The Week Onchain - Week 8, 2023

As shown in the graph above, the 7-day EMA Bitcoin aSOPR had been below the 1 level during the bear market, but with the recent rally, the metric has brought above the mark.

This means that during the downturns in the bear market, investors had sold at a loss, but thanks to the recent price rise, they have made enough gains to be able to move coins at a profit.

This makes sense, but the indicator contains even more interesting information which can be seen from its interactions with the line where the value becomes 1. From the graph, it is clear that during the last bearish period, the indicator found constant rejection when it reached this mark.

The reason behind this is that investors see this break-even level as getting the money “back” that they had previously lost due to falls in the bear market. Because of this, there is a lot of selling going on here, causing the price (and the metric itself) to face resistance.

However, in bullish periods this trend reverses and the line becomes a support level for Bitcoin instead. This psychological shift occurs because bull-rally investors begin to see their break-even mark as a buying opportunity instead, and thus a lot of buying takes place here, giving a boost to the price.

With the recent rally, it appears that this shift has already started to take place, as the 7-day EMA aSOPR has found support on this line during the last two retests, which is visible in the chart.

“Overall, this signals a reduction in sell-side pressure and a potential return of the ‘buy-the-dip’ mentality,” notes Glassnode. “A convincing SOPR testing and bounce from 1.0, especially on longer-term moving averages (14D or 30D, for example), is often a signal of a changing market regime.”

BTC price

At the time of writing, Bitcoin is trading around $24,500, up 13% in the past seven days.

BTC consolidates sideways | Source: BTCUSD on TradingView

Featured image from Jievani Weerasinghe at Unsplash.com, Charts from TradingView.com, Glassnode.com