Bitcoin has now dropped below the $28,000 level, but the data from an on-chain indicator may indicate that this drop may only be temporary.
Bitcoin Short-Term Holder SOPR just dropped below the 1 level
As noted by an analyst in a CryptoQuant afterthe statistic’s current values have generally served as ideal buying opportunities during past rallies.
The relevant indicator here is the “Expent Output Profit Ratio” which tells us whether the average Bitcoin investor is currently selling their coins at a profit or a loss.
When this indicator has a value greater than 1, it means that the profits realized in the market are currently greater than the losses. On the other hand, values below this threshold indicate a dominance of loss-taking by the holders.
The SOPR exactly equal to 1, of course, corresponds to a neutral state, where the average holder just breaks even on their investment, since gains equal losses here.
While the SOPR is generally defined for the entire Bitcoin market, it can also be applied to specific segments of the market. In the context of the current discussion, the “short-term holder” (STH) segment is of interest.
The STHs form a cohort that includes all investors who held their coins less than 155 days ago. Those STHs that manage to stay above this threshold enter the “long-term holders” (LTH) group.
Here is a chart showing the trend in the Bitcoin STH SOPR over the past few years:
The value of the metric seems to have seen some decline recently | Source: CryptoQuant
As shown in the chart above, the Bitcoin STH SOPR was below 1 during last year’s bear market, suggesting that the average STH sold at a loss during this period.
This is the typical behavior observed in bearish periods, as the constant fall in price causes investors to panic and sell at a loss. An interesting pattern seen during such periods is that the line where SOPR reaches a value of 1 begins to resist the asset.
The reason this happens is that the STHs are selling at this level at the price they bought. During bear markets, they usually go with losses, so when they find an opportunity to sell to recoup their original investment, they jump right in. . This is why the level offers resistance and forces the indicator to stay below it.
However, the opposite behavior is observed with price increases as holders come to view the break-even level as a profitable entry point, leading to high levels of buying at that level. This ensures that the indicator quickly returns above level 1 if it falls below it.
From the chart, you can see that the rally has also seen a similar trend so far this year as the Bitcoin STH SOPR has remained above 1 (alongside a temporary drop in March, which eventually resulted in a sharp rise in price) .
In recent days, the indicator has dropped again to this level of much historical importance as the price has dropped below $28,000. If the past pattern is anything to go by, an uptick here could become more likely for BTC price.
BTC price
At the time of writing, Bitcoin is trading around $27,600, down 1% over the past 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
