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The BeInCrypto editors analyzed the SOPR on-chain indicator of the Bitcoin network to assess the chances of BTC continuing the bullish cycle.
What’s happened SOPR?
The Spent Output Profitability Ratio (SOPR) is an on-chain indicator that estimates the profit or loss for each transaction made. Accordingly, it demonstrates whether the market as a whole is in profit or loss. It is calculated from the unspent transaction balances (UTXO) data by dividing the selling price by the coin’s purchase price.
An SOPR value> 1 indicates that market participants are making a profit from the sale of BTC. Accordingly, a coefficient <1 indicates that they are losing money, and a value of 1 indicates a neutral state of the market.
There is also such a variant of this on-chain metric as the adjusted indicator (aSOPR). It does not include all UTXO outputs that have a lifecycle of less than one hour. This allows you to clear the coefficient from unnecessary “noise”.
What happened in 2017
During periods of bull markets, the SOPR holds steady above the 1 mark as the market is in profit while the price is making new all-time highs.
During the bull market 2016-2018. the indicator bounced many times from level 1 (black circles), but never broke through it – until January 2018 (red circle), which was the beginning of a decline.
Thus, the break of the SOPR on-chain indicator below the 1 mark marked the beginning of a long-term market correction.
During the subsequent correction, the SOPR fluctuated in a big way on both sides of the 1 mark (black frame), which is a sign of the market’s indecision, which cannot determine the further direction of the trend.
After the start of the bullish trend in 2020, the indicator bounced off level 1 (black circle) again.
In July 2020, this on-chain indicator deviated below 1 (red circle). This could potentially signal the end of BTC’s bull run. However, the SOPR soon recovered above this important line, and the decline turned out to be just a temporary deviation.
However, at the beginning of January, the indicator dropped below 1 again (red circle).
What does this mean for BTC
Thus, we can see that the on-chain SOPR has held steady above the 1 mark during bull market periods. Correction 2018-2020 showed that at this time the indicator randomly fluctuates both above and below 1.
During the current bull market, the SOPR also remained stable above 1, confirming the bullish trend. The July drawdown was interpreted as a deviation as the indicator quickly recovered to its original positions.
However, the current decline in this metric below 1 is worrisome and could mark the beginning of a long-term correction. The next few weeks will be decisive in this regard. They will show if this bearish breakout is confirmed or the indicator manages to recover again.
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