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.
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