BeInCrypto takes a look at on-chain indicators for Bitcoin (BTC), more specifically the Spent Output Profit Ratio (SOPR) in order to isolate patterns relative to prior bullish cycles.
What is the SOPR?
SOPR is a chain indicator that measures the state’s overall profit or loss in the market. In order to arrive at its values, the buy and sell prices of each unspent transaction output (UTXO) are divided between them.
The adjusted SOPR (aSOPR) is slightly different, since it does not take into account transactions that have a lifespan lower than one hour.
2017 reading
During bull markets, the SOPR consistently stays above one. The reason is that the market is profitable as new all time highs are reached.
In the entire 2016-2018 bull run, the indicator bounced at the one line numerous times (black circle) but did not break down until Jan 2018 (red circle), which was the beginning of the downward movement.
Therefore, the entire bull run was accompanied by readings greater than one, while the breakdown below the line marked the start of the long-term correction.
Current reading
During the ensuing correction, SOPR moved freely above and below 0, a sign of an undetermined trend (black box).
After the uptrend restarted in 2020, the indicator bounced back to line 0 (black circle).
On July 2020, SOPR deviated below the 1 line (red circle). This potentially indicated that the bull run was over. However, since it reclaimed the line shortly afterwards, the decrease was only considered a deviation.
However, it fell below one (red circle) again, which is the case in early January.
Findings
So far, we have found that SOPR consistently gives readings above 1 during bullish periods. As seen during the 2018-2020 correction, the indicator freely moves above and below 1 during corrective periods.
In the current bull run, SOPR has consistently stayed above one, suggesting the trend is up. July’s decline was also ruled out as a deviation, as the indicator regained the line shortly thereafter.
However, the current decrease below 1 is worrisome, and could signify the start of a long-term correction. The movement during the next few weeks will be crucial, since it could lead to a full on breakdown or another potential reclaim.
