Bitcoin on chain analysis: SOPR warns of bear market

 More specifically the Spent Output Profit Ratio (SOPR), to find out the next market trend.

What is SOPR?

SOPR is an indicator used to measure whether the market is making a profit or a loss. Its value is determined by dividing the sales and purchase prices by each unspent output (UTXO).

The adjusted SOPR  is a slight variation on this indicator. It doesn’t care about BTC transactions that are less than an hour old.

SOPR in 2017

In bull markets, the SOPR is always above 1. The reason for this is that the market is profitable as the price hits a new all-time high.

During the entire 2016-2018 bull run, the indicator rebounded from line 1 several times (black circle) and only broke off in January 2018 (red circle), this is where the trend began.

Thus, the entire bull cycle is accompanied by values ​​above 1, while a break below 1 marks the beginning of a long-term correction.

The source: Glass knot

SOPR value at the moment

In the subsequent correction, SOPR moves freely above and below 1, a sign of an indefinite trend (black box).

After the upward trend started again in 2020, the indicator bounced back up from line 1 (black circle).

In July 2020, SOPR deviated from below 1 (red circle). This could possibly indicate that the bull cycle is over. However, since it did not regain line 1 long afterwards, the drop was only counted as a deviation.

Nevertheless, it fell below one again at the beginning of January (red circle).

The source: Glass knot

Result

So far we have found that consistently delivers values ​​above 1 in upward phases. As seen during the 2018-2020 correction, this indicator moves freely above and below 1 during the correction periods.

In the current bull cycle, the SOPR remains stable above 1, indicating an uptrend. The decline in July was also just a deviation, as the indicator hit the line again shortly afterwards.

However, a recent drop below 1 is worrying and could signal the start of a long-term correction. Therefore, the movement will be very important in the next few weeks, we need to keep a close eye on this indicator.

A final break will confirm that BTC is in a long-term downtrend.

You can see the Bitcoin price here.

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Disclaimer: This article is for informational purposes only, not investment advice. Investors should research carefully before making a decision. We are not responsible for your investment decisions.

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