Data shows the Bitcoin Adjusted Spent Output Profit Ratio (aSOPR) is retesting the historical bull-bear junction. Will a break be found this time?
Bitcoin aSOPR Now Doing More Than 1.0 Level
According to Glassnode’s latest weekly report, a successful retest here could suggest a regime change in the BTC market. “Spent Output Profit Ratio” (SOPR) is an indicator that tells whether Bitcoin investors are selling their coins at a profit or a loss today.
When the value of this metric is greater than 1, it means that the average holder in the market is moving the coin at some current profit. On the other hand, a value below the threshold indicates that the overall market is realizing some current losses. A SOPR that is exactly equal to 1 naturally indicates that investors are only short-selling today.
A modified version of this indicator is the “adjusted SOPR” (aSOPR), which filters out all coin sales that take place only within an hour of the coin being acquired. The main advantage of this modification is the removal of noise from the data that would not have a visible effect on the market.
Now, here is a chart showing the trend in the 7-day exponential moving average (EMA) of Bitcoin aSOPR over the past few years:
The 7-day EMA value of the metric seems to have gone up in recent days | Source: Glassnode's The Week Onchain - Week 3, 2023
As shown in the chart above, the 7-day Bitcoin aSOPR EMA has risen sharply recently and has reached level 1 for the first time since the pre-FTX crash. This level is historically significant for BTC, as the crypto often encounters resistance during bear market periods.
The reason behind this is the fact that aSOPR equal to 1 line represents the break-even mark. If the metric rises to this mark, it means that the owner has enough return on neutrality to recover the investment.
Psychologically, investors see this as getting their previously lost money “back” and therefore spend on a large scale here, thus providing an impedance to the crypto price.
A successful break above this level will suggest, however, that there is enough demand in the Bitcoin market right now that the owner can realize the profit and the current buyer to absorb this selling. Because of this, the break usually results in a transition from a bear to a bull market.
When the bull market continues, the effect of the level of aSOPR 1 flips, and the line even begins to provide support for the price of BTC.
The price of BTC
At the time of writing, Bitcoin is trading around $21,200, up 23% over the past week.
Looks like the rally has come to a halt since hitting the $21,000 level | Source: BTCUSD on TradingView
Featured images from Kanchanara on Unsplash.com, charts from TradingView.com, Glassnode.com