On-chain data shows the Bitcoin Output Profit Ratio (SOPR) is approaching a very important line retest. Can the bull come out on top?
Bitcoin SOPR Again Near Bull-Bear Junction Retest
As indicated by the analyst in the CryptoQuant post, the SOPR is close to the value of 1. “SOPR” is an indicator that tells us that the average investor in the Bitcoin market is selling coins at a profit or a loss. now.
When the value of this metric is greater than 1, it means that the overall market is moving the coin in some current gains. On the other hand, the value below the threshold is not so clear that the owner as a whole realizes some loss at the moment.
Of course, when the SOPR has a value equal to 1, it means that the profit realized in the market is equal to the current loss, indicating that the average investor is just losing his investment.
Now, here is a chart showing the trend in the 7-day simple moving average (SMA) of Bitcoin SOPR over the past few months:
The 7-day SMA value of the metric seems to have been going down in recent days | Source: CryptoQuant
As shown in the chart above, the 7-day Bitcoin SOPR SMA recently broke above the 1 level as the price of BTC increased. This means that the price increase gets enough investors into the green that they can sell the coins at a net profit.
Prior to this breakout, the indicator had been stuck below the 1 mark for the better part of the past year. From the chart, it appears that the metric is below the level, tried many tests again, but it always fails and the metric is rejected down (along with the price).
This trend is not unusual and has been observed in past bear markets. The reason is that the SOPR equal to the value of 1 acts as a psychological level where investors think that they have “returned” their money (which they previously lost to bear market losses) and so sell a lot here. thus providing resistance to the price.
However, in a bull market, the average owner begins to see the break-even mark as a profitable entry into the market (because they believe that prices will rise in the future), so they buy here. This leads to the line flipping to the support level for the price.
From the chart, it can be seen that just a few days ago, the 7-day Bitcoin SOPR SMA retested this level from above and the line succeeded in becoming support, which could be an early sign that the transition to a bull-dominated market is in progress now.
With today’s latest price decline, SOPR is again down and nearing a retest of this key line. It remains to be seen whether the bulls will win and the price will recover successfully, or if the bears will get back into the driving seat and the SOPR will fall below 1 again.
BTC price
At the time of writing, Bitcoin is trading around $21,800, down 7% over the past week.
Looks like the value of the asset has declined recently | Source: BTCUSD on TradingView
Featured images from Maxim Hopman on Unsplash.com, charts from TradingView.com, CryptoQuant.com