Bitcoin has now fallen below the $28,000 level, but data from an on-chain indicator may suggest that this drop may only be temporary.
Bitcoin Short-Term Holder SOPR Falls Below 1 Level
As one analyst pointed out in a CryptoQuant post, the current values of the metric often serve as ideal buying opportunities during past rallies.
The relevant indicator here is the “Expended Output Profit Ratio,” which tells us whether the average Bitcoin investor is trading their coins at a profit or at a loss today.
If this indicator has a value greater than 1, it means that the profits realized in the market today are more than the losses. On the other hand, values below this threshold suggest a dominance of loss-taking from holders.
The SOPR exactly equal to 1 naturally corresponds to a neutral state, where the average owner breaks even with their investment, since the income is equal to the losses here.
While the SOPR is generally defined for the entire Bitcoin market, it can also be applied to specific market segments. In the context of the current discussion, the “short term holder” (STH) segment is of interest.
STHs comprise a cohort that includes all investors who have held their coins since less than 155 days ago. STHs that manage to hold beyond this threshold enter the “long-term holder” (LTH) group.
Now, here is a chart showing the trend of Bitcoin STH SOPR over the last few years:
The value of the metric seems to have seen some decline recently | Source: CryptoQuant
As shown in the above graph, Bitcoin STH SOPR is below the 1 mark during last year’s bear market, suggesting that the average STH has sold at a loss during this period.
This is the common behavior observed in bearish periods, as constant price declines make investors panic and sell at losses. An interesting pattern that can be seen in such times is that the line where the SOPR reaches the value of 1 starts to give resistance to the asset.
The reason this happens is that at this level, STHs are selling at the price they were bought at. During bear markets, they usually lose, so whenever they see an opportunity to sell to recoup their original investment, they jump on it. . This is why the level provides resistance and forces the indicator to stay below it.
The opposite behavior can be seen in price rallies, however, as holders begin to see the break-even level as a profitable entry point, leading to a large amount of buying taking place in level. This ensures that the indicator quickly returns above the 1 level if it falls below it.
From the chart, it can be seen that this year’s rally has also seen a similar trend so far, as Bitcoin STH SOPR remains above 1 (except for a temporary decrease in March, which resulted in a sharp surge in price).
In the last few days, the indicator dropped again to this level with a lot of historical significance as the price dropped below $28,000. If the past pattern is anything to go by, a rebound will be more likely for the BTC price here.
At the time of writing, Bitcoin is trading at around $27,600, down 1% from last week.
Looks like BTC has sharply dropped in value during the last few days | Source: BTCUSD on TradingView.com
Featured image from iStock.com, charts from TradingView.com, CryptoQuant.com