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A key indicator to track on-chain bitcoin spending behavior and current market sentiment is the Spent Output Profit Ratio (SOPR).
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A key indicator to track on-chain bitcoin spending behavior and current market sentiment is the Spent Output Profit Ratio (SOPR).
The below is from a recent edition of the Deep Dive, Bitcoin Magazine's premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now[2].
A key indicator to track on-chain spending behavior and current market sentiment is the Spent Output Profit Ratio (SOPR). SOPR is calculated by dividing the realized value of a spent output (in USD) by the value at creation of the original. Simply put, it’s calculating the price sold over price paid for every UTXO that moves on-chain. The best place to read more on SOPR is here[3].
SOPR values greater than 1 indicate that on average, more profit is being realized while SOPR values less than 1 indicate that on average, more losses are being realized. At a value of 1, the market is net neutral. We can analyze SOPR behavior at a total market level and across long-term holders (LTHs) and short-term holders (STHs).
What to look for in the SOPR metric is the metric’s reaction around 1. During continued bull-cycle rallies, we consistently see more profit-taking behavior under 5% with these in-between periods when the market is neutral or break-even. You can see when SOPR bounces off of 1 and back to a state of profit taking during bull markets. When it falls below 1 and doesn’t reclaim that level, the market is signaling a bull market reversal forming as investors
