Bitcoin’s SOPR Ratio Indicates Potential Market Peak Amid Profit-Taking Surge


In the complex yet fascinating world of cryptocurrency, Bitcoin has been brewing a historical trend within an on-chain indicator, signaling that the asset may be nearing a peak, if it hasn’t already done so. The conduit of this intricate development is an element known as the ‘Spent Output Profit Ratio’ or SOPR, which sheds light on whether Bitcoin investors are selling their coins at a profit or a loss at any given moment.

Typically, when the SOPR metric ascends past 1, it signifies a dominance of profit-selling within the current market. Conversely, a metric beneath the benchmark suggests the average holder is handling transactions at a mild loss. The gravity of this situation does not lie solely with the SOPR but rather with a modified version known as the SOPR Ratio. This variant contrasts the SOPR of two distinctive Bitcoin holder categories: the Long-Term Holders (LTHs) and the Short-Term Holders (STHs).

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Encompassing the differing facets of the Bitcoin market, these investor divisions are classified based on their holding period. With 155 days marking the demarcation line, STHs are those who made purchases within the said duration, whereas for LTHs, this timeframe extends beyond, encapsulating steadfast investors holding on to their coins for more extended periods.

Unraveling a pattern, a recent chart illustrates a downward turn for the seven-day moving average (MA) of the Bitcoin SOPR Ratio, a trend that seemingly dominated the cryptocurrency landscape. The said metric kept an upward momentum throughout 2023 and early 2024 before hitting a peak and subsequently taking a downturn. If the SOPR ratio surpasses 1, it suggests LTHs, known for their steadiness, are indulging in profit-taking more than their STH counterparts.

The rally of BTC towards an all-time high (ATH) seemed to trigger the LTHs, the so-called ‘diamond hands’, into reaping some profits they accumulated over their extended holding periods. The crest of this trend was the setting of a new ATH, with these long-term investors indulging in peak profit-taking. Since that zenith, the LTHs appear to scale back on their profit-selling, though still significantly surpassing the STHs.

Historically, this sequence of investor response has manifested at various junctures of the asset’s lifespan. While the intensity of LTH profit-taking has been decreasing with each cycle, an intriguing consistency has emerged – the SOPR ratio’s peak always aligns with price peaks.

The current scenario hints that the most recent crest in the metric could indeed be the apex of this cycle, albeit with the condition that the pattern of diminishing returns continues as predicted. Preempting further progression, the peak might surpass current levels yet remain below the previous cycle’s high, respecting the historical Bitcoin pattern.

Regardless of the eventual outcome, the apparent peak in the SOPR ratio might bear a shadow on Bitcoin’s prospects, albeit in the short term. Despite this potential downside, Bitcoin appears to be on a steady recovery path, valiantly charging back above the $66,100 mark in recent days. The future might hold further surprises, but for now, Bitcoin’s intriguing dance with the SOPR ratio certainly holds the spotlight.