Bitcoin SOPR Plunges, Why This Could Be Bullish

Keshav Verma

2 years ago

3 mins read

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On-chain data shows the Bitcoin Spent Output Profit Ratio (SOPR) has plunged recently; here’s why this may be bullish for the price.

Bitcoin SOPR Observed A Deep Plunge In Recent Days

As an analyst in a CryptoQuant post pointed out, many investors have sold at a loss recently. The “SOPR” is an indicator that tells us whether investors are currently selling at a loss or a profit.

This metric looks at the on-chain history of each coin being sold or moved to see the price at which it was previously transferred. If this last selling price for any coin was less than the price it’s being sold, then the investor realizes a profit with the sale. Similarly, the coin’s being sold at a loss in the opposite scenario.

When the value of this indicator is greater than 1, it means the number of profits being 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 metric having a value below this threshold implies loss realization is more dominant in the market. Naturally, the SOPR being equal to 1 suggests the holders break even on their selling.

Now, here is a chart that shows the trend in the Bitcoin SOPR over the last few years:

The value of the metric seems to have dipped quite low recently | Source: CryptoQuant

As displayed in the above graph, the Bitcoin SOPR has been above 1 for much of the year 2023 so far. This means that the average investor has been selling at a profit during this period.

This trend makes sense, as the asset’s price has observed some strong bullish momentum in the last few months. Rallies like these naturally entice investors to harvest their gains, hence why profit selling spikes during such price surges.

However, the indicator saw a sharp plunge a couple of days back, and its 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 spikes in the metric were observed during the last few years. Interestingly, whenever the indicator has sharply plummeted, the price has bottomed out and followed up with a rise.

Such spikes in the Bitcoin SOPR are usually a sign of capitulation from the loss holders. When these investors finally sell, coins move toward holders with stronger convictions, and the selling pressure starts getting exhausted. This is likely why the price bottoms out close to such capitulation events.

Earlier in the current rally, when BTC had also plunged below the $20,000 mark, the SOPR saw such a spike. The latest stretch in the rally, which has taken the price above $28,000, followed it.

If this same pattern that has been seen time and time again repeats for the latest SOPR plunge as well, then Bitcoin could feel a bullish effect from it. However, something different about the recent loss selling is that it has come while the price has already been at a relatively high levels of $28,000.

All the previous instances of this trend came when the price had been facing a bearish wind overall. It remains to be seen whether this difference may 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 last week.

BTC has mostly moved sideways recently | Source: BTCUSD on TradingView

Featured image from Michael Förtsch on Unsplash.com, charts from TradingView.com, CryptoQuant.com

Keshav Verma

Keshav is currently a senior writer at NewsBTC and has been attached to the website since June 14, 2021.

Keshav has been writing for many years, first as a hobbyist and later as a freelancer. He has experience working in a variety of niches, even fiction at one point, but the cryptocurrency industry has been the longest he has been attached to.

In terms of official educational qualifications, Keshav holds a bachelor’s degree in Physics from one of the premier institutes of India, the University of Delhi (DU). He started the degree with an aim of eventually making a career in Physics, but the onset of COVID led to a shift in plans. The virus meant that the college classes had to be delivered in the online-mode and with it came free time for him to explore other passions.

Initially only seeking to make some beer money, Keshav unexpectedly landed clients offering real projects, after which there was no looking back. Writing was something he had always enjoyed and to be able to do it for a living was like a dream come true.

Keshav completed his Physics degree in 2022 and has been focusing on his writing career since, but that doesn’t mean his passion for Physics has ended. He eventually plans to re-enter university to obtain a masters degree in the same field, but perhaps only to satiate his own interest rather than for using it as a means to find employment..

Keshav has found blockchain and its concepts fascinating ever since he started going down the rabbit-hole back in 2020. On-chain analysis in particular has been something he likes to research more about, which is why his NewsBTC pieces tend to involve it in some form.

Being of the science background, Keshav likes if concepts are clear and consistent, so he generally explains the indicators he talks about in a bit of detail so that the readers can perhaps come out having understood and learnt something new.

As for hobbies, Keshav is super into football, anime, and videogames. He enjoys football not only as a watcher, but also as a player. For games, Keshav generally tends towards enjoying singleplayer adventures, with EA FC (formerly FIFA) being the only online game he is active in. Though, perhaps due to being ultra-focused on the game, he is today a semi-pro on the EA FC scene, regularly participating in tournaments and sometimes even taking back prize money.

Because of his enthusiasm for anime and games, he also self-learned Japanese along the way to consume some of the untranslated gems out there. The skill didn’t merely remain as just a hobby, either, as he put it to productive use during his exploration for small-time gigs at the start of COVID, fulfilling a couple of Japanese-to-English translation jobs.

Keshav is also big into fitness, with agility and acceleration-related workouts making a big part of his program due to the relevance they have in football. On top of that, he also has a more traditional strength based program for the gym, which he does to maintain an overall fitness level of his body.

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