Spent Output Profit Ratio (SOPR) is an on-chain analysis indicator that gives an overall view of the behavior of bitcoin market participants. In recent times, interesting things have happened on the SOPR chart and its derivatives for short and long term investors.
The SOPR chart is showing greater fractal similarity to the summer of 2021, when the cryptocurrency market was undergoing a deep correction. Moreover, as short-term holders rise above SOPR 1, there are signs that the current correction has already ended.
What is Expenditure Production Profit Ratio?
The Spent Output Profit Ratio (SOPR) is an on-chain indicator that is calculated by dividing the actual value (in USD) by the cost of manufacturing spent output (in USD). In simple words, it is: Price sold / Price paid. If the ratio is above 1, the owner of the asset sold records a profit. If it is below 1 then there is a loss. The greater the deviation from 1, the greater the profit/loss.
The last very deep fall in SOPR (14-day moving average) occurred in March 2020, when BTC price recorded a macro low at $3782. After the onset event of this COVID-19 pandemic, SOPR quickly rose above 1 and did not drop below until a deep correction in May-July 2021.
SOPR remained below 1 level during this 3 month period. It attempted a breakout but was rejected by line 1, indicating selling pressure for BTC with no profit or loss (blue arrow). It was only with the end of the BTC price correction that the indicator decisively broke above the level of 1 and remained high for the next months.
However, as the price of BTC fell from an all-time high of $69,000 in November 2021, the SOPR again fell below 1 in early December 2021. Similarly in the summer of 2021, we see a failed attempt to break above 1 (blue arrow) and a rejection at the end of December.
It was only after BTC hit a low of $32,900 that the SOPR indicator began to move up dynamically and successfully broke the crucial level of 1 on February 7, 2022. This signals that the average BTC holder is once again recording a small profit. Sell at current price. If the price of the indicator does not break out and stays above 1, it will be a bullish signal. In the past, this has been the beginning of an uptrend on Bitcoin (green arrows and lines).
Long term holder SOPR
An interesting perspective on the current health of the bitcoin market is provided by long-term holder SOPR. It takes into account only those assets which are gone with a period of more than 155 days.
In the chart of the long term SOPR going back to 2013, we again see the importance of level 1. A bear market remained on Bitcoin (red areas and lines) whenever it fell and remained below 1, and long-term holders suffered losses.
However, BTC continued its upward rally until the indicator fell below 1 for sure. A good analogy is the end of 2013 (green circle) for the current effort to have long-term SOPR support. At that time, the indicator approached a value of 1, but did not drop below. Following that event, BTC began another parabolic rise.
short term holder SOPR
Despite the interesting developments in the chart above, the most exciting one today is the SOPR of short-term holders. Unlike the previous indicator, it only takes into account assets that have moved in less than 155 days.
The 7-day moving average of this indicator presents a similar perspective to the chart of SOPR’s 14-day moving average discussed in the first section. Here we likewise see similarities between the March capitulation and the May-July 2021 period and the current correction. Equally, there was an unsuccessful attempt to break above 1 (blue arrow) and a successful breakout of that level (green arrow).
A more detailed analysis of the fractal similarity of these two loss periods for short-term holders was provided by @TheRealPlanC, He used 4 colors to illustrate these similarities in a chart on Twitter recently. Red is surrender, yellow is a failed recovery, blue is reaching a bottom and green is confirmation of a trend reversal:
According to the analyst, a return of short-term holder SOPR above a value of 1 is a sign of a bitcoin trend reversal. It is worth mentioning that this conclusion coincides with the recent bullish signal generated by the so-called “Market Reversal Indicator”, also written by him.
Another market analyst @SwellCycle Comes to a very similar conclusion. He indicates the persistence of short-term SOPR above 1 despite high volatility in the market. They have taken February 4th as the cut-off point for a change in the bullish trend, which coincides with the breakout of the short-term SOPR above 1 and the breakout of the BTC price above the long-term descending resistance line.
For the latest bitcoin (BTC) analysis from BeInCrypto, click here,