On-chain data shows a Bitcoin indicator is near a crucial retest currently that may decide where the cryptocurrency will go next from here.
As pointed out by an analyst in a CryptoQuant post, the BTC SOPR for short-term holders is approaching the baseline. The “Spent Output Profit Ratio” (SOPR) is an indicator that tells us whether Bitcoin investors are selling/moving their coins at a profit or at a loss right now.
When the value of this metric is greater than 1, it means that the average holder in the market is realizing some amount of profit with their selling currently. On the other hand, values below this threshold suggest loss taking is the dominant force in the market at the moment.
Naturally, the SOPR being exactly equal to the 1 baseline implies the total amount of profits being realized are exactly canceling out the amount of losses as the market as a whole is neutral.
This SOPR is for the entire Bitcoin market, but in the context of the current discussion, the relevant version of the metric is the one for just a single segment of the market: the “short-term holders” (STHs).
The STH group includes all the investors who purchased their coins less than 155 days ago. This cohort generally includes the weak hands of the market, who may easily react to fluctuations in the market.
Now, here is a chart that shows the trend in the 90-day and 365-day moving averages (MAs) of the Bitcoin STH SOPR over the last few years:
As displayed in the above graph, the 90-day MA of the Bitcoin STH SOPR (colored in yellow) broke out above the 1 baseline back when this rally first started around the beginning of the year.
This breakout suggested a shift towards profit selling for these investors, something that has historically been observed in all previous major rallies in the cryptocurrency.
With the latest leg in the Bitcoin rally above the $30,000 mark, the 365-day MA of the indicator (highlighted in blue) has also managed to climb up above this mark.
While this has been happening, though, the 90-day MA has actually been heading down and is now about to cross below the 365-day MA as it approaches the 1 baseline.
In the chart, the quant has marked the two previous instances where a trend similar to this had formed for the asset. It looks like back in 2016 when the 90-day MA had retested the 1 mark after a similar structure had taken shape, the metric had found support at the break-even mark. This rebound kept Bitcoin going and the coin eventually built up into a bull market.
In 2019, though, the retest of the 90-day MA STH SOPR failed and a bearish trend once again took over the coin. It wouldn’t be until 160 days later that bullish sentiment returned and the rally happened.
As the current Bitcoin market looks to be in a similar spot as these two historical occurrences, it’s possible that it may follow the lead of one of these. It now remains to be seen, as to which of these patterns the asset might exhibit this time.
At the time of writing, Bitcoin is trading around $30,300, down 1% in the last week.
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